VanEck’s junior gold miners ETF to broaden index coverage

Apr 21st, 2017 | By | Category: Commodities

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The VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ) has become too big for its index, resulting in issuer VanEck and index provider MVIS Indices having to expand the coverage of the ETF’s underlying index to avoid breaching regulatory thresholds.

VanEck’s junior gold miners ETF to broaden index coverage

Assets invested in the VanEck Vectors Junior Gold Miners grew by approximately 55% to $5.4 bn between 1 January and 17 April.

The ETF tracks the MVIS Global Junior Gold Miners Index (MVGDXJ), a reference for the performance of the micro- and small-cap companies operating within the gold mining industry. It has proven very popular with investors recently, with assets swelling by approximately 55% to $5.4 billion between 1 January and 17 April. As a result, the fund now owns giant positions in some of its underlying holdings, raising the risk of surpassing regulatory limits.

This has precipitated VanEck to announce a formal broadening of the underlying index to include stocks with larger market capitalizations – while the current version of the index implies a market cap range of the underlying holdings between $75 million and $1.6 billion, the expansion will likely increase the upper boundary to approximately $3bn, according to a report by Scotiabank. The expansion of the index has been scheduled for 17 June 2017; the reconstitution of the ETF will follow shortly thereafter.

Scotiabank estimates the changes will include 23 new additions to the index, representing roughly 60% of the new index portfolio.

A statement from VanEck gave support to this analysis. It said, “We do not know what the final impact of the announced rule change will be on the composition of the MVIS Global Junior Gold Miners Index once it is implemented on June 17, 2017. Based on data reported by MVIS, if the newly announced rule had been in effect as of March 31, 2017, the MVIS Global Junior Gold Miners Index would have included 69 companies (up from 48). The largest company, by market capitalization, would have been $2.9 billion (up from $1.8 billion). The weighted average market capitalization of the MVIS Global Junior Gold Miners Index would have been $1.7 billion (up from $967 million).”

MVGDXJ

Constituent market cap profile of MVGDXJ compared to parent NYSE Gold Miners Index profile. The market cap of the largest stock in MVGFXJ shifts upwards to $2.9 billion (from $1.8bn) with the newly announced revised methofology.

In anticipation of required selling within the ETF to finance the purchase of new larger-cap additions, Scotiabank estimates $2.6bn will be sold across existing index constituents, representing 2.5% to 8% of the total shares outstanding of each existing index constituent), the fund fell by around 3.5%.

This is not the first time GDXJ has broadened its underlying index. Having encountered the same problem in December 2014, the implied upper limit on the allowable market capitalization range was practically doubled to just under $1bn.

The ETF has a total expense ratio (TER) of 0.56%.

VanEck offers a UCITS-compliant version of the fund listed in Europe, the VanEck Vectors Junior Gold Miners UCITS ETF (LON: GDXJ), which launched in March 2015 and has a TER of 0.55%. It is significantly smaller in size with $60m in assets under management.

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