Gold investors have a choice to make. They can either invest in the commodity itself or take their chances on an individual miner.
Investing in gold miners is not for the faint of heart. They have huge operating leverage, meaning that their costs largely stay the same while the price of gold fluctuates.
A mine with an all-in sustaining cost of $1,000 per ounce is far more profitable when gold trades at $1,300 versus $1,200 per ounce.
But there’s risk involved in picking gold miners. What happens if there’s an accounting scandal? Or there’s terrorism at a mine? Even something as mundane as a worker’s strike can really impact a precious metals producer with only a few locations.
There’s a better way. A gold producer ETF gives investors access to that operating leverage, but without the risk of betting on individual securities. The BMO Junior Gold Index ETF (TSX:ZJG) tracks a portfolio of 14 small- and mid-cap gold miners.
Its largest holdings include IAMGOLD Corporation (TSX: IMG, 14.2% of assets), Kirkland Lake Gold Ltd. (TSX: KL; 11% of assets), and Osisko Gold Royalties Ltd. (TSX: OR; 10.7% of assets). Approximately 90% of its assets are invested in Canadian-listed gold producers.
While this fund has had lackluster results since its 2010 debut, that’s the fault of the sector, not the fund. It has demonstrated greater upside potential than larger cap gold ETFs, although that also means more downside when gold doesn’t perform.
This ETF also comes with a reasonable management expense fee of 0.60%, as well as plenty of liquidity for retail investors. More than 100,000 shares trade hands on an average day.
