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Mining: A great sector to play seasonal trends

A worker is pictured next to a conveyor belt at the Ariab mine September 28, 2011. The Ariab mine in east Sudan's Red Sea state, the country's largest single gold mining operation, is run by a partnership between Sudan's government and Canada's La Mancha. Sudan plans to more than double its gold output in two years partly to help make up for a possible fall in oil revenues after the independence of its crude-oil producing south in July, Sudan's Minerals Minister Abdelbagi Gailani Ahmed said in April.


The metals and mining sector offers one of the more consistent seasonal plays each year. Its period of strength is from the end of November to the end of May. Average return per period during the past 20 periods is 8.0 per cent. Conversely, the sector's period of weakness is from the end of May to the end of November. Average loss per period is also 8.0 per cent.

The sector currently is following its seasonal pattern of weakness into November. Last week, metal and coal prices fell sharply mainly on concerns that economic growth in China is slowing. Many metals and mining stocks and related ETFs closed at 14-month lows on Friday.

The easiest way to invest in the sector is to own the SPDR S&P Metals & Mining Index Exchange Traded Fund during its period of seasonal strength. Largest holdings in the portfolio are Freeport McMoran Copper & Gold, Newmont Mining, Alcoa, Peabody Energy and Nucor. The portfolio holds 40 securities that are listed on U.S. exchanges. Management expense ratio is 0.35 per cent.

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SPDR Metals & Mining Index ETF is mainly an amalgamation of four subsectors: base metals with a 31.6 per cent weight, steel with a 33.8 per cent weight, coal with a 17.1 per cent weight, and gold and precious metal with a 17.6 per cent weight. Investors also can invest in these subsectors through exchange traded funds.

An investment in the steel subsector is available through the Market Vectors Steel ETF . The portfolio consists of 26 securities listed on U.S. exchanges that represent the largest steel manufacturers in the world. Top five holding by weight are Rio Tinto, Vale, ArcelorMittal, Gerdau and United States Steel. Management expense ratio is 0.55 per cent.

An investment in the coal sub sector is available through Market Vectors Coal ETF . The portfolio holds 36 securities listed on U.S. exchanges that represent the largest coal producers in the world. Top five holdings by weight are China Shenhua, Energy, Joy Global, Consolidated Energy, Peabody Energy and Alpha Natural Resources. Management expense ratio is 0.59 per cent.

An investment in the gold sector is available through Market Vectors Gold Miners ETF . The portfolio holds 31 securities listed on U.S. exchanges representing the world's largest gold producers. Top holdings by weight are Barrick Gold, Goldcorp, Newmont Mining, Kinross Gold and Anglogold Ashanti. Management expense ratio is 0.53 per cent.

Several investments in the base metal sector are available. Claymore offers the Claymore S&P/TSX Global Mining ETF . The portfolio holds 149 securities representing most of the largest base metal companies in the world. Horizons offers the BetaPro S&P/TSX Global Mining Bull+ ETF . The ETF tracks double the daily upside return of the S&P/TSX Global Mining Index. Horizons also offers the BetaPro S&P/TSX Global Mining Bear + ETF . The ETF tracks double the daily downside return of the S&P/TSX Mining Index. BMO Capital offers the BMO S&P/TSX Equal Weight Global Base Metals Hedged to CAD Index ETF . The portfolio holds 52 securities with each holding representing approximately 2.0 per cent of the portfolio. Global X offers the Global X Copper Miners ETF . The portfolio holds 30 international copper producer stocks.

On the charts, the SPDR S&P Metals and Mining ETF currently has a negative technical profile. Intermediate trend is down. Units trade below their 50- and 200-day moving averages. Short-term momentum indicators are oversold, but have yet to show signs of bottoming. Strength relative to the S&P 500 index and TSX composite index has been negative since the end of its period of seasonal strength in May. Preferred strategy is to watch for technical signs of a bottom in the sector as its period of seasonal strength approaches at the end of November.

Don Vialoux is author of a free daily report on equity markets, sectors, commodities and Exchange Traded Funds. Reports are available at . Mr. Vialoux also is research analyst for JovInvestment Management Inc.

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