GDXJ: A Small-Cap Gold Miner ETF With Big Potential

Two asset classes that have been on the upswing lately are the U.S. Dollar and Gold which are both seen as safe havens. While they are bouncing around a lot and are due for a correction any pullback could be a good buying opportunity. Today we’ll focus on an ETF that will allow you to participate in gold’s rally without actually owning gold, namely GDXJ.

Lorimer Wilson, editor of, provides below further reformatted and edited [..] excerpts from Brandon Clay’s ( original article* for the sake of clarity and brevity to ensure a fast and easy read. Clay goes on to say:

You’ve probably heard of the SPDR Gold Shares (GLD) which is backed by physical gold holdings and has become the world’s second-largest ETF by assets, thanks to rising gold prices and huge cash inflows. Several smaller ETFs are also backed by physical gold but there are other ETFs available to help investors play positive gold trends that are not reliant on actual gold holdings.

The Market Vectors Junior Gold Miners ETF (GDXJ), the small-cap cousin to the large-cap focused Market Vectors Gold Miners ETF (GDX), has proven popular with investors since its debut in November 2009, accumulating almost $116 million in assets. That’s an impressive haul in such short time.

Some investors still view small-cap gold names in a negative light which is probably due to those promotional pieces we get by email from unscrupulous hucksters extolling a small-cap miner with no chance of survival, let alone turning a profit. Those are NOT the stocks GDXJ owns. While not huge, New Gold (NGD), Gammon Gold (GRS), Coeur d’Alene Mines (CDE), and other holdings are real companies that are in the business to stay.

About 54% of GDXJ’s holdings are considered “small-cap” using the metric of a market cap of $200 million to $1 billion. The ETF balances this with 44% in mid-cap names (stocks with market caps of $1 billion to $5 billion). In addition, GDXJ’s country exposure should give investors some comfort. Nearly two-thirds of the assets are in Canadian companies while Australia and the U.S. also have double-digit allocations.

To be sure, many of GDXJ’s holdings could be considered speculative but that’s what makes this ETF a good idea. Select small-cap gold miners can offer big-time rewards. The trick, though, is to own the right names. GDXJ isn’t actively managed, but its index methodology seems to result in a pretty good selection.

GDXJ has performed admirably so far in 2010, gaining 5.5%% as of the end of May, somewhat less than GDX (13.3%) and GLD (11.0%) but it has outperformed its larger rivals since its debut last November. While any gold-related ETF is sensitive to the daily price swings in the underlying commodity GDXJ may be a good alternative for some gold exposure.

To go long small-cap and mid-gap gold producers, buy GDXJ.


Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
– Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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