Leveraged Gold Miner ETF Breaks Down

April 19, 2017

The VanEck Vectors Junior Gold Miners ETF (GDXJ) prominently made headlines here at ETF.com during the past week for running into "too big for its index" issues. Now another gold miner exchange-traded fund is in the news after facing different, but related, problems.

After the market closed last Thursday, Direxion announced that it would be suspending creations of its Daily Junior Gold Miners Index Bull 3x Shares (JNUG), a leveraged product that tracks the same index as GDXJ―the MVIS Global Junior Gold Miners Index.

According to Direxion, the suspension of creations will continue until further notice, while redemption orders for the fund will not be affected. JNUG has $1.15 billion in assets under management (AUM).

Not The First ETF Suspension

This isn't the first time an issuer has suspended creations for an exchange-traded product. There are currently 46 U.S.-listed ETPs that are closed to creations for various reasons. Most of them are thinly traded exchange-traded notes with little in the way of assets.

In those cases, the issuer may stop issuing shares because it doesn't see the need to support a product that's not profitable.

But sometimes, large, profitable products can see creations suspended, too. Last year, Credit Suisse made waves when it decided to suspend creations of a highly popular, leveraged oil ETN, the VelocityShares 3x Long Crude Oil with the ticker symbol UWTI. At the time, UWTI had more than $1.5 billion in assets, but Credit Suisse decided to suspend new shares and delist the product, presumably because the firm wanted to exit the exchange-traded note business.

Also in 2016, creations for the iShares Gold Trust (IAU) were briefly halted after strong demand in the fund led to a temporary exhaustion of shares. IAU's exchange-traded commodity structure required it to register additional shares with the SEC before it could resume creations―which it did a few days later.

JNUG's Unwieldy Exposure To GDXJ

One thing JNUG shares with the now-defunct UWTI and the aforementioned IAU is that it is a hit. Assets under management for the fund are currently $1.15 billion, up 10 times from where they were at the start of 2016.
 

Source: Bloomberg

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