Thematic specialist EQM Indexes has unveiled a new equity index providing smart beta exposure to junior gold mining stocks globally.
The index provides exposure to junior gold producers as well as exploratory companies that are in pre-production.
The EQM Pure Junior Gold Miners Index has been designed to provide “improved pure-play access” to the small-cap gold mining segment by targeting metrics such as production levels rather than market cap.
The methodology identifies two categories of gold mining companies: gold producers and exploratory gold producers.
Gold producers are defined as firms that derive at least 75% of their revenue from the sale of gold or through gold royalty agreements. To focus on the junior segment of the market, only gold producers that mine less than 1 million troy ounces of gold per year, or receive royalties equivalent to under 1 million troy ounces of gold per year, are included.
Exploratory gold producers are defined as firms in pre-production that attribute at least 75% of their surveyed deposits to gold. According to EQM Indexes, by including exploratory companies, the index leverages the gold mining segment’s future operating potential, a feature that is typically not present in traditional gold mining indices.
Any gold producer or exploratory gold producer with a market capitalization below $100 million or an average daily trading volume less than $1m is not eligible for inclusion.
The weight of each category is set to equal the aggregate market capitalization of constituents within that group while capping the weight of the exploratory gold producer category at 15%. Within each category, stocks are equally weighted, subject to liquidity constraints, allowing the index to diversify its performance more broadly across all constituents.
The index is reconstituted and rebalanced semi-annually with buffer rules helping to limit unnecessary turnover.
There are currently 60 stocks in the index which is primarily exposed to Canadian companies, accounting for 54% of the index weight, with a further 27% in Australian-domiciled firms. The remaining 19% is spread across eight countries.
Jane Edmondson, CEO and Co-Founder of EQM Indexes, said: “There is a strong case for gold exposure in the current market environment of zero to negative interest rates, heightened volatility and uncertainty, and the potential for future inflation.
“Owning junior mining stocks provides a diversification complement to owning physical gold, and we think our unique index construction approach will enable investors to get purer junior gold mining exposure.”
Investors seeking exposure to junior gold mining stocks may wish to consider ETFs offered by VanEck and Sprott Asset Management.
VanEck offers by far the largest ETF in the space, namely the $6.3 billion VanEck Vectors Junior Gold Miners ETF (GDXJ US). This ETF comes with an expense ratio of 0.53% and tracks the MVIS Global Junior Gold Miners Index. The market-cap-weighted index includes firms globally that derive, or intend to derive, at least 50% of their revenue from the gold and silver mining industry.
A Europe-listed version of the fund is also available – the VanEck Vectors Junior Gold Miners UCITS ETF (GDXJ LN) houses $400m and costs 0.55%.