The gold mining industry has experienced a bumpy ride alongside the precious metals market. However, investors may smooth out the ride through a targeted strategy that hones in on high-quality, well-managed gold producers with a proven track record of sustainable profitability even when bullion loses its luster.
On the upcoming webcast this Tuesday (available for CE Credit), Is Now the Time to Consider a Different Kind of Gold ETF?, Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, will evaluate the gold mining industry and consider an alternative strategy that emphasizes North American royalty and streaming companies that could act as a smarter play on the metals and mining space.
Unlike the other gold metal miners-related ETFs on the market, 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 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.
Related: New U.S. Global Investors Gold Miners ETF Enters Smart Beta Space
The ETF also includes a 30% tilt toward royalty and streaming companies, which could help investors better manage many common risks associated with traditional producers, such as building and maintaining mines, among others. Moreover, the lower risk may help diminish risk since royalty companies have historically rewarded investors by increasing dividends at a faster clip than the broader equity market.
“Because they’re not directly responsible for building and maintaining mines and other costly infrastructure, huge operating expenses can be avoided,” according to a U.S. Global research note. “They also hold highly diversified portfolios of mines and other assets, which helps mitigate concentration risk in the event that open of the properties stops producing. As a result, royalty companies have enjoyed a much lower breakeven cost than traditional miners.”
GOAU’s top holdings include Royal Gold Inc 10.6%, Franco Nevada Corp 10.1%, Wheaton Precious Metals Corp 8.9%, Kirkland Lake Gold 5.0% and Premier Gold Mines 4.7%.
The gold miner ETF is a global play on gold miners. Country weights include Canada 50.7%, South Africa 17.1%, U.S. 15.2%, Australia 9.8% and U.K. 7.3%.
Financial advisors who are interested in learning more about the gold mining industry can register for the Tuesday, August 22 webcast here.