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Gold-producer equities have badly lagged gold’s gains over the past couple of years. (DIEGO LEVY/BLOOMBERG NEWS)
Gold-producer equities have badly lagged gold’s gains over the past couple of years. (DIEGO LEVY/BLOOMBERG NEWS)

ETFs

Time to take seasonal profits in gold stocks Add to ...

Congratulations to investors who purchased Canadian-listed gold equity exchange traded funds for a seasonal trade this summer. Returns have been exceptional this year. The return on the S&P/TSX Global Gold Index since July 16 is 20.2 per cent, plus a small dividend.

Seasonal influences for gold and gold stocks started slightly earlier than usual this year. Thackray’s 2012 Investor’s Guide notes that the period of seasonal strength for the gold equity sector is from July 27 to Sept. 25. The equity sector trade has been profitable in 17 of the past 25 periods including 11 of the past 14 periods. Average gain per period for the past 25 periods was 7.2 per cent.

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On the charts, the S&P/TSX Global Gold Index recovered strongly from 289.06 at the close on July 13 to reach 347.55.

The Index moved above its 20-, 50- and 200-day moving averages and has significantly outperformed the S&P 500 Index and TSX Composite Index. However, the index recently has struggled near a band of resistance between 359 and 396 and its short-term momentum indicators including Stochastics and Relative Strength Index have flashed short-term sell signals. Favourable seasonal influences tend to peak near the end of September.

A word of caution. Historically, the month of October has been the weakest month of the year for gold equities and related ETFs.

So what to do now? Take seasonal trading profits at current or higher prices.

As I’ve pointed out before, there are four ETFs that could benefit from a bullish seasonal trend in the sector.

Each ETF has unique characteristics and each generated different returns.

The most actively traded gold equity ETF in Canada is the iShares S&P/TSX Global Gold Index Fund. The fund tracks the performance of 59 precious metal stocks that make up the S&P/TSX Global Gold Index. The Index is capitalization– weighted. Largest holdings are Barrick Gold, Goldcorp, Newmont Mining, Kinross Gold, Anglogold Ashanti and Agnico Eagle. Management expense ratio is 0.55 per cent. Since July 16, the ETF has gained 19.8 per cent

Horizons offers the BetaPro S&P/TSX Global Gold Bull + ETF and the BetaPro S&P Global Gold Bear + ETF. Both are leveraged ETFs that track the S&P/TSX Global Gold Index. The bull ETF is designed to generate twice the daily upside performance of the index. The bear ETF is designed to generate twice the daily downside performance of the Index. Management expense ratio is 1.15 per cent. Since July 16, the Bull ETF has gained 42.4 per cent

Horizons also offers the AlphaPro Enhanced Income Gold Producers ETF. The ETF tracks the performance of a portfolio holding 15 equally weighted senior global gold and silver producers. At or near the money listed call options are written against security positions. Option premiums and dividends earned by the fund are distributed to unit holders on a monthly basis. The strategy is enhanced by high implied volatilities on the call options of senior gold producer stocks. Management expense ratio is 0.65 per cent. Since July 16, the ETF has gained 10.9 per cent plus distributions.

Bank of Montreal offers the BMO Junior Gold Index ETF. The ETF tracks a diversified portfolio of 35 junior gold stocks that make up the Dow Jones North American Select Junior Gold Index. The Index is capitalization weighted. Largest holdings are Allied Nevada Gold, Coeur D’Alene Mines, Alamos Gold, AuRico Gold and Nova Gold Resources. Management expense ratio is 0.55 per cent. Since July 16, the ETF has gained 25.2 per cent.

Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst at Horizons Investment Management, offering research on Horizons Seasonal Rotation ETF (HAC-T). All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment. Horizons Investment is the investment manager for the Horizons family of ETFs. Daily reports are available athttp://www.timingthemarket.ca/

 
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