Diversification for any portfolio is key. Far too many “do-it-yourself” type investors tend to find themselves with too little in the way of diversification when it comes to portfolio construction, a traditional problem for many in terms of limiting downside risk over the long-run.
Exchange Traded Funds (ETFs) provide investors with the ability to access a fully diversified pool of stocks in a given index or sector, increasing the potential for higher risk-adjusted returns over time.
One such ETF in the gold sector I’ve commented on in the past that I think provides gold bulls with excellent leverage to an increasing commodity price in precious metals is the Van Eck Vectors Jr. Gold Miners ETF (TSX:GDXJ).
This ETF tracks a broad basket of junior mining and exploration companies in the gold sector. Thus this ETF effectively provides investors with a way to monetize gold reserves and proven or unproven discoveries that may have been unprofitable at lower gold prices but are now modelling out decent long-term cash flow producing assets at these levels.
As with other sectors, juniors (or small caps) tend to carry inherently higher risk, with higher potential reward, relative to large cap blue chip stocks. This ETF, similar to the GDX (also from Van Eck Vectors) tracking larger cap gold miners, is a similar way to gain basket exposure to producers at a very low management expense ratio with higher upside than bouillon or futures in a rising gold price environment, making this an excellent choice for aggressive gold investors.
Invest wisely, my friends.
