Investors who want to bet on junior resource companies on the TSX Venture Exchange can now turn to exchange-traded funds (ETFs) instead of just stocks.
Global X Funds plans to roll out its Global X S&P/TSX Venture 30 Canada ETF this Thursday in New York, while BlackRock Canada has filed a preliminary prospectus to launch its iShares S&P/TSX Venture ETF in Canada soon.
"There is a tremendous amount of appetite for natural resource firms" in the United States and globally, Global X Funds chief executive officer Bruno del Ama said in an interview on Monday. While there are ETFs focused on junior resource companies, "the Venture Exchange is a different play" because it is only focused on early-stage Canadian-listed firms, he said.
The Global X ETF will track the new S&P/TSX Venture 30 Index, which was announced Monday by Standard & Poor's. The ETF will charge a management fee of 0.75 per cent a year.
The index includes the 30 largest stocks on the Venture exchange by market value that also meet minimum requirements for liquidity. To qualify, a stock must have an average trading volume of at least 100,000 shares a month.
Global X Funds, which began in 2009 and now has about $1.5-billion (U.S.) in assets, has specialized in developing niche ETFs that track stocks in areas such as gold exploration, silver mining and uranium production, as well as in specific countries such as Argentina.
The iShares ETF, which will track the more diversified S&P/TSX Venture Select Index, will be listed in the second quarter of this year. Venture stocks "aren't well covered and understood by analysts," but an ETF is appealing because it is a diversified product that is cheap and easy to trade, said Oliver McMahon, director of product management for iShares ETFs at BlackRock Canada.
The TSX Venture Exchange is the result of the merger of the Vancouver and Alberta stock exchanges in 1999. The S&P/TSX Venture Composite Index tracks the roughly 1,700 companies on the resource-heavy exchange and has been highly volatile. While the index gained just over 50 per cent last year and nearly 91 per cent in 2009, it lost about 72 per cent in 2008 during the market meltdown.
Steven Palmer, whose AlphaNorth Partners Hedge Fund is 80-per-cent invested in Venture Exchange companies, is enthusiastic about the potential of the new offerings to make shorting strategies easier to implement.
"I can pick some stocks that will outperform and hedge out the market risk by shorting the ETF," said the president of Toronto-based AlphaNorth Asset Management Inc.