Up 70% YTD, This ETF Offers a Gold Mine of Opportunities
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View Membership BenefitsIf investors are mining for opportunities, the Sprott Gold Miners ETF (SGDM) should be on their list. The ETF is up over 70% this year. That confirms the momentum for the yellow metal has yet to wane and the latent upside by miners could be in its early stages.
As of August 7, SGDM finds itself sandwiched in between a few defense ETFs and runner-up in terms of YTD performance for nonleveraged funds. Gold itself can be a defensive play though in a much different context.
A peek under SGDM’s hood shows the inclusion of miners mostly from Canada. Seventy percent of its top 10 holdings are domiciled in Canada. That gives SGDM country diversification along with exposure to the U.S., Australia, and the U.K. The fund’s focus is primarily the largest names in the gold mining industry, following the current upside in large-cap names.
SGDM’s Stratospheric Gains
Thus far this year, SGDM’s top three holdings have been driving the stratospheric gains piggybacking on gold’s rise — Newmont Corp, Agnico Eagle Mines, and Wheaton Precious Metals. They account for just over 34% of the fund’s portfolio. Gold is up more than 28% so far this year. Further upside will benefit miners as demand for the precious metal continues. As UBS noted earlier this year, miners benefit from “operational upside,” leveraging the price gains of the precious metal. Should its current trajectory sustain, it’s still an opportune time to get exposure to miners.
SGDM’s performance is further highlighted when compared side-by-side with the NYSE Arca Gold Miners and the S&P GSCI Gold indexes. It’s currently outperforming both for the year.
Demand Drivers
Despite the latent move gold miners can make relative to the spot price of gold, the same demand drivers exist. Thus, that will determine if miners can sustain their current upside.
Central banks’ thirst for gold continues, and it may not be quenched anytime soon. Increasing de-dollarization is seeing central banks stock up their gold reserves as opposed to currency reserves (namely the greenback). That should continue to help sustain gold prices in the future.
The fundamental drivers of increasing gold exposure also remain. Geopolitical tensions and tariff risks swirling in the markets will continue induce a sense of uncertainty in the markets. That said, gold will continue to remain an option,as a safe haven asset to counter any potential volatility that could arise from these factors. This is where gold’s defensive stance in a portfolio comes into play.
The anticipation easing monetary policy should also apply downward pressure on the dollar. In turn, this will help boost the case for gold exposure, and in turn, drive gold mining demand.
“The precious metals rally reflects not only a flight to traditional safe havens, but also growing concerns about persistent inflation, currency debasement and central banks approaching the limits of policy normalization amid burgeoning levels of debt both domestically and globally,” said Shree Kargutkar, managing partner, Sprott Inc. & senior portfolio manager, Sprott Asset Management. “With real interest rates stabilizing and fiat currency credibility under pressure, we believe investor appetite for hard assets has further room to grow.”
Combining Growth Potential
An additional option to consider is the Sprott Junior Gold Miners ETF (SGDJ). While today’s market has been dominated by large-cap growth names, just like gold miners relative to gold, small-cap equities can also make a later move to the upside. With that, investors can combine the growth potential inherent in small-cap companies and combine that with gold mining exposure with SGDJ.
For more news, information, and strategy, visit the Gold & Silver Investing Content Hub.
An investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Prospectus, which contains this and other information, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing, which can also be found by clicking one of the links below.
Past performance is no guarantee of future results. One cannot invest directly in an index.
Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance.
Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi.
Exchange Traded Funds (ETFs): SETM, LITP, URNM, URN, COPP, COPJ, NIKL, SGDM and SGDJ
Physical Bullion Funds: PHYS, PSLV, CEF, and SPPP
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