Daily ETF Watch: Precious Metals Fund Filed

May 17, 2016

U.S. Global Investors, the firm that launched the U.S. Global Jets ETF (JETS) about a year ago, has filed for an ETF that will target the stocks of precious metals mining companies. The GO GOLD Kitco U.S. Global Precious Minerals Equity ETF (GOAU) will invest in companies that derive at least 50% of their revenue from mining gold, silver, platinum or palladium.

Kitco is a well-known Canadian company that deals in precious metals. It’s not clear from the prospectus what its involvement is with the proposed ETF.

The underlying index’s rather complex methodology screens out stocks that do not meet liquidity standards and those that mainly use debt to finance their operations. According to the prospectus, the remaining companies are evaluated using fundamental factors that include market capitalization, operating-cash-flow-to-enterprise-value ratio, cash return on invested capital, return on assets growth, debt-to-equity ratio, and gross margin. Each company receives a score based on those factors that the methodology uses to sort them into weighted tiers.

Tiered Methodology
The three highest-scoring companies that use a royalty business model structure are based in North America and have at least $500 million in market capitalization, are equal-weighted and classified as Tier 1, which receives a total weight of 45% of the portfolio.

Tier 2 comprises the five highest-scoring companies that are either domiciled in North America or that have U.S.-ADRs and are domiciled in South Africa or the U.K. They must have at least $300 million in market capitalization. The companies are equal-weighted within the tier, which is weighted at 20% of the portfolio.

Tier 3 comprises the next five highest-scoring companies, using the same standards with regard to domicile as Tier 2, while requiring that the companies have at least $200 million in market capitalization. Tier 3 is weighted at 15% of the portfolio.

Finally, Tier 4 equal-weights the next 10 highest-scoring companies that are domiciled outside of North America and have market capitalizations of at least $200 million. Tier 4 is weighted at 20% of the total portfolio.

The filing did not include an expense ratio or a listing exchange.

Contact Heather Bell at [email protected].

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