Gold Miner ETFs And Einhorn

November 10, 2011

Anytime hedge fund magnate David Einhorn speaks, the market listens.

After blowing the whistle on Green Mountain Coffee, Einhorn was back at it again last week, extolling the virtues of gold mining shares.

During a Greenlight Capital conference call last Thursday, Einhorn highlighted the case for gold equities, specifically the Market Vectors Gold Miners ETF (NYSEArca: GDX).

Einhorn’s affinity for gold is no secret, and his bullishness on mining shares is a derivative play on his fondness for the yellow metal. And who can blame him? The eurozone is teetering on the edge, the political elite in this country continue to set new lows for themselves, and China is being asked to bail everyone out. If nothing else, gold may be a hedge against political stupidity.

While I’m in no place to question the validity of his thesis, I do wonder if GDX is the best option for investors looking at gold mining stocks.

Of course, GDX may be the best choice for a hedge fund manager looking to move in and out of large positions, but does it offer the best exposure to gold mining companies? After all, there are five different gold mining ETFs on the market, all promising different exposures to the same basic theme.

Ticker Name ADV AUM Expense Ratio
GDX Market Vectors Gold Miners 798,485,897 9,927.46 0.53%
GDXJ Market Vectors Junior Gold Miners 90,345,183 2,444.87 0.54%
GGGG Global X PURE Gold Miners 106,218 5.22 0.59%
GLDX Global X PURE Gold Explorers 564,080 28.04 0.65%
PSAU PowerShares Global and Precious Metals Portfolio 446,488 55.45 0.75%

The main strategy divergences among the funds in this segment come from size tilts and selection methodology.

GDX and “PSAU,” the PowerShares Global Gold and Precious Metals Portfolio (NYSEArca: PSAU), have holdings and average market caps that are strikingly similar, owing to the fact that both aim to track market-cap-weighted indexes that include large-cap diversified gold and silver mining companies.

Don’t be fooled by GDX’s gold-centric name, because both it and PSAU also provide exposure to silver, copper and nickel mining. They also happen to be the two best-performing funds over the past six months.


5 Gold Miners ETFs


Meanwhile “GGGG,” the Global X Pure Gold Miners ETF (NYSEArca: GGGG), is the segment’s third-best-performing fund in the past six months.

It also promises the most pure gold-mining exposure. This point of differentiation is noteworthy as even “GDXJ” and “GLDX”—the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) and the Global X Gold Explorers ETF (NYSEArca: GLDX)—have significant silver and base metals mining exposure.

So while GGGG may have a small asset base and paltry trading volume, it provides the purest exposure to the theme Einhorn is targeting. And it’s only marginally more expensive than the biggest and most liquid fund in the segment, GDX. As the table above shows, GGGG has an annual expense ratio of 0.59 percent, compared with 0.53 percent for GDX.

What GGGG offers is, in many ways, a middle of the road for investors.


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