A massive strike at platinum mines in South Africa has set off a domino effect, inspiring similar strikes at properties mining everything from gold to chromium. For investors holding gold mining ETFs, this should set off alarm bells.
That’s because the labor unrest currently enveloping South African mining properties has sent South Africa’s currency, the rand, into a tailspin. On Monday, the currency hit a three-year low, and there’s no bottom in sight.
Since a fair amount of the world’s precious metals production comes from South Africa, investors in gold mining ETFs need to take a step back to re-evaluate how the currency risk will impact their portfolios moving forward.
Since March 1, the rand has fallen 16 percent against the U.S. dollar, and more than half of that loss has come in the past month alone.
Six gold miner ETFs currently compete for investor dollars, with subtle differences among them that produce different portfolio exposures.
Of the six funds, only one—the Global X Gold Explorers ETF (NYSEArca: GLDX)—has no exposure to South Africa. Among the other five, only one—the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ), has less than 10 percent of its portfolio in South Africa.
What separates GDXJ and GLDX from their competitors is the mandate each fund follows. GDXJ targets junior gold mining companies, the majority of which are still in the exploration phase and haven’t begun producing. GLDX only targets exploration firms, hence the moniker “Gold Explorers.”
By including factor tilts in smart beta’s definition, you get a mishmash of ETFs.
When ETF-friendly advisors give advice to prospects, it’s worth noting what they shouldn’t say.
UAE and Qatar leaving iShares frontier ETF ‘FM’ poses problems, but will make the fund better.
BlackRock makes a subtle change to its securities-lending program that all investors should cheer.