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3 Forgotten Ways to Play Mining Sector with ETFs

JUNR SILJ GLDX

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Broad commodities are showing an impressive comeback after a steep fall earlier this year, and have caught enough investor interest of late. This is particularly true given recent moves in the space, as many metals have been rebounding from their lows or moving higher.

In the precious metal world, gold climbed 13% from its June low while silver gained 14% last week, marking the biggest weekly gain in almost five years. Base metals like copper, aluminum, and zinc are also trending upwards (read: Base Metal ETFs Soar on Strong Data).

This surge in broad metals was driven by the perception that China is improving slowly and the Euro zone has emerged out of recession, while the U.S. is now growing at a faster clip. Meanwhile, lower chances of the Fed scaling back its monetary stimulus sometime soon has led to a decline in the dollar that is boosting demand for the metals.

Further, investors are now turning their focus on commodities rather than equities as they think equity markets look expensive at current levels and could come down in the short term given uncertainty about the Fed’s tapering (read: 2 Commodity ETFs Offering Investors Sweet Returns).

This turnaround has finally shifted perception on the mining space, leading to some strong performances in the broad commodity world. Given this broad rally, the miners, who are often leveraged to the price changes of their underlying commodities, have started gaining traction.

In fact, many mining ETFs are actually spiking lately, with several up more than 5% over the past three weeks (read: 3 Mining ETFs Finally on the Upswing). Though investors continue to focus on the popular funds in the space, several overlooked ETFs have performed well in the past weeks while volume remained light.

Below, we have highlighted three mining ETFs, which are not only in green, but have delivered nearly double-digit returns so far this month. Any of these could be excellent plays for investors seeking to ride this sudden move in the metal mining space even higher:

Global X Junior Miners ETF (JUNR - ETF report)

This ETF provides broad exposure to small cap firms in the mining world from across the globe by tracking the Solactive Global Junior Miners Index. The product has amassed only $5.3 million in AUM while it charges 69 bps in fees per year.

With holdings of 92 securities in its basket, the fund is widely spread across each security as none of these accounts for more than 3.6% share. Precious metals enjoy the top position in the basket comprising roughly three-fifths of the assets. The rest goes to broad metals and minerals, coal and alternative energy, steel, and aluminum (read: The Guide to Broad Metals and Mining ETFs).

In terms of national breakdown, Canada and the U.S. take the top spots with 36.25% and 21.53% of assets, respectively. Australia (19.32%), China (4.88%) and Japan (3.61%) round out the top five, suggesting that many countries have sizable chunks in the portfolio.

Though JUNR is down 33.7% year-to-date, it added 8% this month alone.

PureFunds ISE Junior Silver ETF (SILJ - ETF report)

Investors seeking true small cap play on the silver mining space could find SILJ an exciting pick (read: 5 Silver ETFs Surging on Commodity Strength). Having debuted less than a year ago, the fund has attracted just $2 million in AUM and charges 59 bps in fees and expenses.

The fund tracks the ISE Junior Silver Small Cap Miners/Explorers Index, holding about 26 companies in total. The product stays true to its ‘junior’ focus, as it doesn’t have any asset in securities that are mid or large caps. However, the ETF is heavily concentrated in its top 10 holdings with more than 70% of assets.The top three holdings – Silvercorp Metal (SVM), Fortuna Silver Mines (FSM) and Endeavour Silver (EXK) – make up for combined 36% share. In terms of country exposure, Canadian firms dominate the fund at 76% while U.S. securities make up for 20% share.   

The product has added about 20% so far this month but is down nearly 34% in the year-to-date time frame.

Global X Gold Explorers ETF (GLDX - ETF report)

This ETF provides exposure to the small basket of 20 gold mining firms by following the Solactive Global Gold Explorers Index. The product has $35.8 million in AUM and expense ratio of 0.65% (read: Gold Mining ETF Investing 101).

The product is pretty spread across each security with Seabridge Gold (SA), Novagold Resources (NG) and Pretium Resources (PVG) occupying the top three positions with a combined 19.38% share. The fund mainly consists of the small cap companies of Canada as these account for 92% of GLDX. The U.S. and Australia takes the remaining portion.

The ETF gained over 18% so far this month but is still down 41.6% year-to-date.

Bottom Line

Mining ETFs have had a horrendous year and have lagged while many other sectors have skyrocketed. However, recent trends in the space have been encouraging for the miners, as metal prices have bounced off of their lows (see more in the Zacks ETF Center). Recent trend suggests that the worst may be over for the space.

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