Amid low interest rates, higher commodities prices, and a soaring Consumer Price Index (CPI), gold and gold miners are disappointing investors this year, but plenty of market observers are wagering that this scenario won’t seep into 2022.
With bullish forecasts looming for gold in the new year and gold miners still under-owned by global investors, the WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN) is a consideration for tactical investors ahead of the new year. The actively managed GDMN debuted last week.
While gold itself has an impressive track record across multiple market climates, miners are a different story. The group tends to overshoot bullion in both directions, and, broadly speaking, has subjected investors to volatility and lagging returns for two decades. That could signal benefits with GDMN’s active approach over standard index-based strategies in this category.
“The characteristics of gold miners are between equities and gold—they have historically been more highly correlated with equities than gold, but their exposure has dampened drawdowns relative to equities and boosted positive performance relative to gold,” says WisdomTree Global Chief Investment Officer Jeremy Schwartz.
A source of allure with gold miners is the fact that the group worked past years of dubious consolidation and ill-fated capital spending and is now home to some of the firmest balance sheets in the materials and mining industry. As Schwartz notes, profitability among gold miners is improving and dividend sustainability and growth look healthy.
For its part, GDMN offers arguably the most unique strategy found in the gold miners ETF category. Not only does the fund feature exposure to mining equities, it also allocates to gold futures, which have the potential to add diversification and reduce volatility.
“This ‘return stacking’ framework seeks to provide exposure to two separate allocations, to gold and gold miners, in a single trade with better capital efficiency,” notes Schwartz. “Our strategy construction is simple. For every $100, the Fund seeks to invest approximately $90 in the gold miners’ basket and $90 in gold futures, for $180 of total gold-oriented exposure.”
Translation: GDMN lives up to the “efficient” in its name by providing exposure to two assets under one umbrella, meaning that investors don’t have to incur the capital outlay of allocating to both gold and the related equities.
The ETF holds 55 stocks with weights ranging from 0.18% to 13.95%, according to issuer data.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.