On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the VanEck Gold Miners ETF (GDX) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Chuck Jaffe: One fund, on point for today. The expert to talk about it. Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange traded funds with the help of Todd Rosenbluth, head of research at VettaFi. And at VettaFi.com, you’l find a full suite of tools that’s going to make you a better, smarter, sounder investor in ETFs.
Check it out, again, at VettaFi.com. Todd Rosenbluth, great to have you back. Good to talk to you.
Todd Rosenbluth: I’m excited to be here.
Chuck Jaffe: Your ETF of the Week is….
Todd Rosenbluth: The VanEck Gold Miners Equity ETF. GDX.
Chuck Jaffe: Yeah, not the usual applause. Just the “I love gold.” GDX, the VanEck Gold Miners ETF. Important to make sure that as we announce it that people don’t just drop the miners out of there, because this is miners, not spot gold. So, love of gold? Well, why miners and not spot, and why gold miners now?
Todd Rosenbluth: I’m sure people have seen that gold continues to set record highs. We’ve seen tremendous demand. Obviously, the price has has done well given the inflationary environment that we’re in, and the need to get diversification. Gold mining ETFs like GDX own companies like Barrick Gold and Newmont Mining and many other companies who are the suppliers. They are benefiting from the price of gold continuing to go up, that there is demand.
But these are actual stocks, so they trade obviously on the stock market. What’s inside the portfolio? You get the reward potential. Of course, some of the risks that come with investing in the equity marketplace. But we think now is a great time, and the materials sector is under-owned. It’s 2% of the S&P 500. So you really don’t have gold mining exposure within your core equity strategies. So you can complement that with GDX.
Chuck Jaffe: In terms of miners and owning GDX, miners tend to be more volatile than the spot funds. So how much do you say, I want to be careful when I’m putting the portfolio together, or I want to watch this like a hawk? Like, is this a case where if you’re going to buy this, you want to be paying more attention? Because if we see a turn in the market, if we see gold take a change, you might want to be out quickly?
Todd Rosenbluth: So this is a tactical idea. You want to think of this as part of your equity exposure. You should certainly not think of this as your commodity exposure, where some people tend to have 5%-10% exposure to commodities in a traditional 50% equity portfolio perhaps, and 40% fixed income. This is equity exposure. This is riskier.
You probably want to keep an eye on this. And certainly if the price of gold starts falling notably, this will hurt gold mining companies. They actually might get hurt further than the price of gold. So, you’re taking on additional risk. We think now is a good time to do so. As the price of gold continues to climb higher, there’s a need for more supply. And gold mining companies are going to be in demand, pun intended.
Chuck Jaffe: I want to make sure that people hear something that I heard in there. And that is that, functionally, you’re treating GDX not like a fund that is invested in gold, but more like a sector fund. A week ago, we were talking insurance, and it was insurance companies as a mix among financial services. And now we’re talking gold miners as basically a play on industrial, because of what they’re doing.
The same way you might say AI if you wanted to narrow down and go focus there. So this is much more a sector selection than any sort of call on gold.
Todd Rosenbluth: That’s right. The insurance space that we talked about last week is a great reference point. Gold or gold equities is a relatively narrow slice of the materials sector, which itself is a relatively narrow slice of the broader S&P 500. So you have little to no exposure to gold mining stocks within a more broadly diversified, equity-based portfolio.
We think it’s worth adding, or considering to add, some exposure to gold mining companies, given how the price of gold has performed, and is perhaps likely to perform, given this still-high inflationary environment, or climbing inflationary environment. Again, we do this week after week. So it’s hard to build up a portfolio of everything that you could have within it. But this could be a slice of a broader portfolio.
Chuck Jaffe: What that also means is that if somebody has a spot gold fund, they’ve been investing in gold. This is not a case of, hey, you’re doubling down in gold. Again, you wouldn’t worry that you’re overloaded in gold. Because this isn’t as much the gold play. Even though it’s obviously influenced by it, as it is an industrial.
Todd Rosenbluth: Correct. This is not going to be doubling down specifically on gold. But you certainly want to have confidence that the price of gold is going to stay at its current levels, if not climb even higher from here in order to have exposure to it. Otherwise, you’d want to have exposure to a different area of the marketplace.
But we think GDX can complement a core portfolio. And this is one of the most frequently traded ETFs. This is tactically used by many investors. So if you’re considering it, you’re benefiting from the trading activity of others, in my opinion.
Chuck Jaffe: That said, it’s also a place where a lot of the the rapid traders are. You can find a lot of different newsletters that will talk about making daily trades on gold, etc. Ordinary investors, they always worry: Did I suddenly just jump in the pool with sharks? But of course, highly liquid fund and all the rest.
So, you’re not concerned that you’re making an intermediate tactical call, that could be a longer-term tactical call, depending on how things play out, but what amounts to an intermediate tactical call, and having people jump into a fund that is also the purview of day traders.
Todd Rosenbluth: No, I’m not concerned about that at all. You benefit from the liquidity of the trading activity of other investors with an ETF like GDX. So, you don’t have to trade, you don’t have to act when they are acting, but you’re benefiting from the tight bid/ask spreads that happen with a frequently traded ETF like this one. And you can certainly have this for buy-and-hold for a period of time.
We just think you need to be prepared for the volatility. But we like GDX; it looks really strong in our database.
Chuck Jaffe: Well, you just heard why you should be putting it to work with GDX, the VanEck Gold Miners ETF, the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff. Talk to you again next week.
Todd Rosenbluth: I’ll see you next week, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe, and yes, that’s me. And you can learn all about my hour-long weekday podcast by going to MoneyLifeShow.com or by searching for it wherever you find great podcasts like this one. And if you’re searching for great information on exchange traded funds, make sure to go to VettaFi.com. They’ve got all the tools you need to up your game in ETFs. They’re on Twitter at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest, is on Twitter too. He is at @ToddRosenbluth.
ETF of the Week is here for you every Thursday. Please make sure you follow along so you don’t miss one. Until next week, happy investing, everybody!
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