This ETF Is the New Gold Standard
I recently had the privilege to participate in a webcast with ETF Trends, talking about factors I like to see when investing in resource stocks. I’ve seen a surge in traffic to my gold website lately, 321gold.com, telling me that investors are buying into this new cycle.
The webcast was for accredited investors, brokers, RIAs and money managers. It included Frank Holmes, CEO and chief investment officer at U.S. Global Investors, who discussed his interesting approach to picking high-quality gold stocks, specifically precious metal royalty and streaming companies. I’ve known Frank for many years now, and I always learn something new from him.
Case in point…
Frank explained that the two biggest gold equity ETFs, the VanEck Vectors Gold Miner ETF (GDX) and VanEck Vectors Junior Gold Miners ETS (GDXJ), have seen healthy fund flows this year. But like a typical run-of-the-mill S&P 500 ETF, their weightings are based solely on market cap. They’re not smart about their allocations, and they’re not investing in the fastest growers.
Money is going into both good stocks and bad stocks. There’s no separation between the two.
They’re dumb products designed for the masses, in other words. This is pure mob mentality, and as I write in my book Basic Investing in Resource Stocks, the mob always loses. So don’t follow the herd. Figure out what the mob is doing, and then do the exact opposite.
That something else, in this case, is the U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU), which Frank and his team launched two years ago. GOAU just does this differently—and better! I was surprised to hear that over 8,000 hours of research and back-testing went into discovering five factors to help GOAU focus on best-in-breed gold stocks.
The Power of Royalty and Streaming Companies
Unlike GDX and GDXJ, GOAU is very selective. It has but 28 stocks. Thirty percent of the ETF is allocated to royalty companies—Franco-Nevada, Wheaton Precious Metals and Royal Gold. These firms have vastly superior financials, which I wrote about just last month, and they have the added benefit of offering exposure to a large number of junior miners.
Franco-Nevada, for example, has interests in over 200 exploration-stage mining properties all over the world, including but not limited to the U.S., Canada, Australia, South Africa, Turkey, Brazil and Peru. Franco is also an active investor in energy, with a maximum weighting of 20 percent of its total portfolio, so investors are also getting some exposure to oil and gas.
So many stupid mergers and financings over the past decade have destroyed the key value factors like growth in revenue per share, production per share and cash flow per share.
Why invest in Barrick or Newmont-Goldcorp, the two biggest holdings in GDX? They’re saddled with tons of debt, and they have low revenue per employee.
The royalty companies, on the other hand, have some of the highest revenues per employee. Wheaton Precious generated an incredible $22 million per employee in the 12 months through March.
An “Active” Gold ETF
I was impressed to learn that GOAU rebalances every quarter. It kicks out the laggards and keeps the winners. So even though it’s an ETF, it’s certainly not “passive.” It’s unique relative to other precious metal ETFs because it can go all the way down to $200 million market cap.
The results speak for themselves…
For the 12-month period through August 27, GOAU is up an incredible 62 percent! GDX, by comparison, was up 60 percent; GDXJ, 46 percent.
I happen not to use gold ETFs myself, but they make sense for a lot of investors. If you’re one of those investors, I highly recommend you check out GOAU. You can do so by clicking here!