A shiny gold ETF stands out

By Tom LydonETFsFOXBusiness

American gold bars stand on display during a preview of "Gold", a new exhibition dedicated to the highly prized mineral at the American Museum of Natural History in New York, November 15, 2006. The exhibit opens November 18 and runs through August 19

A gold miner exchange traded fund that specializes in exposure to gold mining royalties has been standing out. This as gold wraps the first quarter with a gain of about 1.4%.

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The U.S. Global GO GOLD and Precious Metal Miners ETF (NYSEArca: GOAU), a smart beta offering that tracks a specialized or rules-based index to help hone in on quality players in the gold mining space, has increased 3% over the past month while the S&P 500 declined 4%.

TickerSecurityLastChange%Chg
GOAUETF SERIES SOLUTIONS US GLOBAL GO GOLD & PRECIUS10.90-0.02-0.19%

The underlying U.S. Global GO GOLD and Precious Metal Miners Index uses quantitative analysis to pick stocks, with a particular focus on royalty companies. The GO GOLD and Precious Metal Miners ETF tries to reflect the performance of the U.S. Global Go Gold and Precious Metal Miners Index, which is comprised of U.S. and international companies that earned at least 50% of their aggregate revenue from precious metals and categorizes components into four “tiers” of precious metals companies based on certain fundamental factors.

Each tier includes those having revenue per employee that is greater than the median for companies whose revenue per employees is in the top 20th percentile of the broader universe. Additionally, the screen also factors in operating cash flow per employee and gross margin.

"GOAU is a dynamic, rules-based ETF that seeks to invest in both junior and senior metal miners with strong balance sheets and skilled management teams. Companies that rely primarily on debt to finance their business are eliminated from the index," according to a U.S. Global note.

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Royalty Companies May Be a Better Way to Access Gold Production

Furthermore, the ETF includes a 30% tilt to royalty and streaming companies, which could help investors better manage common risks associated with traditional producers, such as building and maintaining mines, among others. The lower risk may also diminish risk since royalty companies have historically rewarded investors by increasing dividends at a faster pace than the broader equity market.

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"GOAU is also unique for potentially having as much as a 30 percent weighting in gold royalty companies, which we consider to be the 'smart money' of the metals and mining space," according to U.S. Global. "Royalty companies tend to be good allocators of capital and take on very little debt. In the past, these firms have enjoyed much of the upside when metal prices were rising, but because they’re not the ones doing the actual mining, they can avoid huge operating costs."

Looking ahead, market and economic factors could contribute to safe haven demand for gold and help support the gold mining segment. For instance, rate hikes, central bank monetary policies, geopolitical risks and surprise actions from President Donald Trump can add to uncertainty.

Meanwhile, fundamentals like rising inflation and gold supply concerns may contribute to stronger pricing. Gold may be past its peak supply as exploration budgets have collapsed. Gold miners are also finding fewer large deposits, which have further weighed on the supply outlook.

This article was provided courtesy of our partners at etftrends.com​.