Who has a stake in HOC's?18 May 2017 13:29
FYI from Outside Club:
Major Market Disturbance Brings A Golden Opportunity
Jason Simpkins Photo By Jason Simpkins
Written Tuesday, May 16, 2017
If you own the VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ), we’ve got some very important news for you.
In fact, even if you don’t own shares of GDXJ, your holdings could still be affected by a major market disturbance that’s coming down the road.
What we’re about to see is a knock-on effect that could drag down a huge number of junior miners, and then, just as quickly, deliver unto them massive gains.
Again, this event could rock the whole sector, but it’s all centered around GDXJ.
Here’s the deal…
VanEck established GDXJ to invest in junior gold miners. We’re talking about small-cap exploration and development companies. But over time, more and more money flowed into the fund. It’s grown from roughly $1 billion in assets in 2010 to about $5 billion today.
Well, as it turns out, you can’t pour that much money into teeny-tiny junior miners without fundamentally altering the market. Remember, these are stocks that, in many cases, have a market cap of less than $100 million. So it’s not hard to move the needle with a big investment. This is why juniors are so notoriously volatile to begin with.
Furthermore, regulations both here and abroad prohibit the fund from taking an outsized role, say 20%, in many of these small companies. This caps the amount GDXJ can invest in certain stocks.
In any case, GDXJ solved this problem by simply investing in bigger, mid-tier mining companies. For instance, Harmony Gold Mining (NYSE: HMY), a company with a $1 billion market cap, now carries as much portfolio weight as Fortuna Silver Mines (NYSE: FSM) — a $650 million company.
Hochschild Mining PLC (LON: HOC), valued at $1.35 billion, makes up 2.64% of the portfolio.
These purchases of mid-tier miners have now pulled the ETF away from its underlying index — the MVIS Global Junior Minors Index. That’s the index the fund was intended to mirror.
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