Traders appear to be taking some profits in gold miners and the corresponding ETFs Wednesday and that is not surprising. The Market Vectors Gold Miners ETF (NYSE:GDX) and its small-cap counterpart, the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) are both down 3.2 percent. That might sound bad, but consider that since the start of July GDX was up almost 14 percent heading into Wednesday and GDXJ was up 19.6 percent.
Some profit-taking was due to occur at some point. While the recent upside moves by various mining ETFs have been impressive, the track record for these funds and their constituents over the past 18 to 24 months has been ominous at best. That could mean some investors might need some more cajoling to truly embrace mining stocks and ETFs.
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Compelling valuations and the potential for a sustained rally in gold and silver prices are fundamental factors that could bode well for further upside for the miners. If that scenario comes to fruition, some obscure ETFs may be also be worthy of consideration.
PureFunds ISE Junior Silver ETF (NYSE:SILJ) When it comes to silver mining ETFs, the Global X Silver Miners ETF (NYSE:SIL) is the dominant name, though that fund has a rival in the form of the iShares MSCI Global Silver Miners ETF (NYSE:SLVP). Over the past month, either SIL or SLVP made for a great choice as the two are up an average of about 23 percent.
No one would quibble over returns like that, but the PureFunds ISE Junior Silver ETF has surged 27 percent over that time. Think of SILJ as the GDXJ of silver mining ETFs. Yes, there are some small-caps in SIL and SLVP, but the newly minted SILJ "is the first pure-play ETF to exclusively hold silver explorers and junior silver producers," according to PureFunds.
Silvercorp (NYSE:SVM) and Fortuna Silver (NYSE:FSM), SILJ's two largest holdings, have an average market cap of about $500 million. Those stocks combine for over 24 percent of the ETF's weight.
IndexIQ Australia Small-Cap ETF (NYSE:KROO) Slowing economic growth in China, the looming end of the Australian mining boom and, yes, falling gold prices have been among the reasons Australia ETFs have disappointed this year.
Now that gold prices are rebounding, so are Australia ETFs. The iShares MSCI Australia ETF (NYSE:EWA) is up 5.4 percent in the past month, but the better of playing Australia's status as one of the world's largest gold producers is with the IndexIQ Australia Small-Cap ETF. KROO has proven as much with a one-month gain of 12 percent.
KROO has 22.8 percent weight to the materials sector, which is 450 basis points higher than EWA's exposure to the same sector. The small-cap fund also gives investors exposure to improvement in Australian economic data as consumer discretionary names account for over 26 percent of the fund's weight.
Global X Pure Gold Miners ETF (NYSE:GGGG) The Global X Pure Gold Miners ETF, a recent victim of a reverse split, has fought back to surge 22 percent in the past month. That is one of the best one-month run among mining ETFs, though hardly anyone has noticed because of GGGG's size (just $3.6 million in assets under management).
On the surface, GGGG appears to be a copycat of GDX and the funds do share a few of the same holdings. However, GGGG is not heavily allocated to mining giants such as Goldcorp (NYSE:GG) and Barrick (NYSE:ABX) as GDX is. In fact, those stocks are not even found among GGGG's 23 holdings.
The Global X offering has a heavy international bias as the U.S. receives a weight of just under five percent, the same as Kazakhstan. Canada, Australia and South Africa combine for about 70 percent of the ETF's country weight.
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