VanEck’s European domiciled gold miners ETF – the VanEck Vectors Gold Miners UCITS ETF – has profited from the increased demand for gold in recent months with assets swelling beyond the $725 million mark.
VanEck’s gold miners ETF has benefited from increased demand for gold with assets swelling to more than $725m.
As of close 18 August 2020, the fund’s assets stood at $729m, up from $268m at the start of the year.
The fund, which is listed in London (GDX LN / GDGB LN), Frankfurt (G2X GY), Zurich (GDX SW), and Milan (GDX IM), provides exposure to companies globally operating in the gold mining industry.
It has enjoyed particularly strong inflows this year ($290m in cumulative monthly flows), especially in recent months, and has also benefited from impressive market performance (+45% YTD) on the back of a rising gold price.
Demand for gold has been driven in large part by investors seeking sanctuary from market volatility caused by the ongoing Covid-19 coronavirus pandemic, record low interest rates, and weakness in the US dollar.
Martijn Rozemuller, Head of Europe at VanEck, said, “The turbulent times on stock markets and the overall uncertain global economic outlook have noticeably increased the importance of gold and precious metals in general and their demand for them again. Of course, the most visible demonstration of this is the continuing rise in the price of gold.”
Needless to say, a rising gold price is a fillip for gold miners. It helps them to not only achieve higher sales and profits from current production but also increases the scope and value of recoverable gold reserves as an elevated price brings previously uneconomical ore deposits into play.
While coronavirus has impacted the operations of a significant number of businesses, VanEck’s Joe Foster, the company’s lead gold portfolio manager and strategist, notes that many miners have been much less affected by coronavirus shutdowns than initially anticipated and have doubtless intensified production to capitalize on the richer price.
“These companies were not affected by the restrictions of the current coronavirus crisis as much as originally feared. In the meantime, they are likely to have ramped up their production again to a large extent,” says Foster.
The asset manager argues that as the political and economic uncertainties are likely to continue in the near future, everything indicates that the outlook for gold mining companies will remain positive.
The fund
The fund is linked to the NYSE Arca Gold Miners Index, a rules-based, modified market-capitalization-weighted index composed of publicly traded companies involved in the mining for gold and, to a lesser extent, silver.
The index is weighted by market capitalization subject to a 20% cap on any single constituent and an additional weight redistribution schedule that ensures sufficient diversification across the entire portfolio with smaller constituents’ weights scaled up.
Because the index includes companies involved in the mining of silver (silver is a common by-product of gold mining), the aggregate weight of companies whose revenues are more significantly exposed to silver mining, such as companies with a revenue exposure to silver mining that is greater than 50%, is capped at 20% of the index at rebalance.
The index includes common stocks, ADRs, and GDRs of relevant companies that are listed on exchanges globally that are accessible to foreign investors.
Only companies with market capitalizations greater than $750m that have an average daily volume of at least 50,000 shares over the past three months and an average daily value traded of at least $1m over the past three months are eligible for inclusion.
To reduce non-essential turnover, the index rules incorporate buffer allowances such that companies already existing in the index are only removed if gold-specific revenues, market capitalization, or liquidity metrics fall below certain thresholds.
The index is reconstituted and rebalanced on a quarterly basis.
Current constituents include Newmont (12.99%), Barrick Gold (12.68%), Franco-Nevada (6.88%), Wheaton Precious Metals (5.62%), Agnico Eagle Mines (4.8%), Newcrest Mining (4.75%), Kirkland Lake Gold (4.36%), Anglogold Ashanti (3.66%), Kinross Gold (3.46%), and Gold Fields (3.38%).
The ETF is fully physically replicating, excludes securities lending, and has a total expense ratio of 0.53%.
Despite the fund’s recent success, however, it is a relative minnow compared to its US-domiciled, NYSE Arca-listed counterpart: the VanEck Vectors Gold Miners ETF (GDX US). This fund has a whopping $18.2 billion in assets under management, making it by far the largest gold equity ETF globally.