In an extended bull market environment, an ETF portfolio that leans toward the largest stocks may expose investors to undue risks. Today’s economic and market environment may be best suited for certain sectors as advisors position client portfolios for a new year.
On the upcoming webcast on Thursday, Jan. 11 (available live and on demand for CE Credit), Where Is Gold Heading In 2018?, Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, will look at alternative index-based strategies in the precious metals industry as a way to potentially diversify risk and potentially enhance returns.
For example, the U.S. Global GO GOLD and Precious Metal Miners ETF (NYSEArca: GOAU) is a smart beta offering that tracks a specialized or rules-based index to help hone in on quality players in the gold mining space. The underlying U.S. Global GO GOLD and Precious Metal Miners Index uses quantitative analysis to pick stocks, with a particular focus on royalty companies.
The GO GOLD and Precious Metal Miners ETF tries to reflect the performance of the U.S. Global Go Gold and Precious Metal Miners Index, which is comprised of U.S. and international companies that earned at least 50% of their aggregate revenue from precious metals and categorizes components into four “tiers” of precious metals companies based on certain fundamental factors.
Each tier includes those having revenue per employee that is greater than the median for companies whose revenue per employees is in the top 20th percentile of the broader universe. Additionally, the screen also factors in operating cash flow per employee and gross margin.
Furthermore, the ETF includes a 30% tilt to royalty and streaming companies, which could help investors better manage common risks associated with traditional producers, such as building and maintaining mines, among others. The lower risk may also diminish risk since royalty companies have historically rewarded investors by increasing dividends at a faster pace than the broader equity market.
“Royalty companies can help investors manage many common risks associated with traditional producers. Because they’re not directly responsible for building and maintaining mines and other costly infrastructure, huge operating expenses can be avoided. They also hold highly diversified portfolios of mines and other assets, which helps mitigate concentration risk in the event that one of the properties stops producing,” according to U.S. Global.
GOAU’s top component holdings include Franco Nevada Corp 10.2%, Royal Gold 10.0%, Wheaton Precious Metals 9.8%, Dundee Precious Metals Inc 4.1% and Fortuna Silver Mines 4.0%.
Country weights include Canada 60.1%, Australia 12.9%, U.S 10.9%, South Africa 9.5%, U.K. 4.6% and Switzerland 2.0%.
Financial advisors who are interested in learning more about the gold miners space can register for the Thursday, January 11 webcast here.