Canadian investors who want to take advantage of rising gold prices through an exchange-traded fund (ETF) can't really get pure exposure to the juniors through the iShares CDN Gold Sector ETF . Nearly 50 per cent of that ETF is invested in the giants like Barrick, Goldcorp and Newmont. See number cruncher.
But Van Eck Global on Wednesday launched Market Vectors Junior Gold Miners ETF that also invests mostly in Canadian companies.
It is the first ETF listed in the United States that concentrates on small- to mid-sized miners exploring for gold or prospecting for the yellow metal in overlooked or abandoned properties.
The ETF seeks to replicate the Market Vectors Junior Gold Miners Index, which is comprised of companies that generate at least 50 per cent of their revenues from gold or silver mining. At Sept. 30, Canadian companies represented 63 per cent of the index followed by 22 per cent and 11 per cent, respectively, in the U.S. and Australian firms.
In its press release, U.S.-based Van Eck Global warned of the risks in investing in its new ETF.
"Many juniors operated at a loss in 2008 and approximately a third of the companies in the fund's underlying index had negative cash flow on a trailing 12-month basis as of June 30, 2009," the firm said.
"Juniors are particularly vulnerable to the price trend of gold as a drop in gold prices could affect their profitability as well as their ability to secure financing to develop new and existing properties, among other things."
A debate on the pros and cons of this ETF has already started on Seeking Alpha website. Gary Gordon suggests the few reaons for the aggressive crowd to purse this risky sector is that "small fries get gobbled up by large fries at a premium. And if China's thirst for resources is any indication, M&A in mining may provide huge rewards."