Loading ...More fuel to support Mr. Copper’s views , from Saville’s Weekly TSI . Explains a lot !
“The lack of demand for junior mining stocks
It has become very difficult, bordering on impossible, to get exposure to the junior end of the gold sector via ETFs. The reason is that over the past few years the ETFs that are supposedly focused on junior gold and silver stocks have adjusted their holdings such that they now offer almost no exposure to actual juniors. For example, all of the top 10 holdings of the VanEck Junior Gold Miners ETF are now mid-tier and senior gold producers. Actually, that’s not entirely true, because this ETF’s largest holding is SBGL, a major producer of PGMs (Platinum Group Metals). For another example, 9 of the top 10 holdings of GOEX, which according to its name (the Global X Gold EXPLORERS ETF) is an ETF focused on exploration-stage gold miners, are mid-tier gold producers. Actual juniors were eliminated from ETFs for liquidity reasons. Specifically, the managers of the funds wanted to ensure that they could easily trade in and out of the components of their funds in response to monetary in-flows and out-flows. They achieved this objective by replacing relatively illiquid juniors with relatively liquid mid-tiers and seniors. Therefore, when investors now buy ETFs in an effort to gain exposure to the junior end of the gold sector, in most cases they actually are gaining exposure to the stocks of mid-tier and large producers. In fact, there is now very little difference between owning GDXJ and owning GDX. This, we think, is an important part of the explanation for why the average junior gold mining stock fared relatively poorly over the past few years and especially over the past 12 months. The investment demand that would have been channeled into the juniors has been diverted by misleadingly-named ETFs into the stocks of larger mining companies. Unfortunately, there is no reason to expect the situation to change anytime soon, because the overarching trend is towards more passive investing via ETFs that track indices and away from active, value-focused speculating and investing. That’s part of why we have changed our stock selection approach. “