Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Sprott Asset Management rolled out a new gold miner ETF which seeks to improve upon the Market Vectors Gold Miners ETF (GDX).
The Sprott Gold Miners ETF (SGDM) is selection of senior gold miners that have the highest beta to gold and good quarterly revenue growth.
John Ciampaglia, the Chief Operating Officer at Sprott Asset Management (pictured), discussed the genesis of the fund.
“Well, we were an investor for many years in the GDX from time to time which is the market vector gold miners fund, and we would use that fund in some of our active funds to equitize cash on a short term basis.
“Just looking at the success we’ve had with the Sprott Physical Bullion Trust and the growing adoption of ETFs, we started to ask ourselves is there a better way to provide the market place with a gold miners offering. As we studied the marketplace, we realized that all the current offerings out there are really one factor models, and the factor is market cap. The larger the market cap, the larger the company is represented in an index.
Highlights
- The Index seeks to outperform a purely passive representation of the gold and silver mining industry
- Transparent, rules-based methodology designed to overweight gold stocks with attractive investment merits relative to the other stocks in the index
- Weighting methodology seeks to emphasize gold stocks with the highest quarterly revenue growth measured on a year-over-year basis and stronger relative balance
- sheets as measured by long-term debt to equity
- The stock selection and index weighting criteria co-developed by Sprott Asset management, a leading, long-time gold sector investor, and Zacks Index Services
- Quarterly rebalancing seeks to ensure that the latest company results are reflected in the composition and weighting of the index
“So it’s really about quantity versus quality, and we thought why don’t we take the knowledge that we have in terms of being active gold investors and try and come up with an alternative indexing strategy.
“It’s designed to compete with other senior miner funds. And really the approach we are taking with the fund is to create an index that uses different company factors to determine which company should go into the index and how they should be weighted. And so we are really breaking this paradigm of market cap.”
