Although it has been a tumultuous few years for gold mining stocks and the exchange traded funds that hold those equities, one things is becoming clear: The Market Vectors Gold Miners ETF (NYSEArca: GDX) has become the barometer of choice for market participants looking to assess the health of gold miners stocks.
Until GDX debuted in May 2006, the NYSE Arca Gold Bugs Index (HUI) was that barometer. GDX tracks the NYSE Arca Gold Miners Index (GDMNTR).
“In this new ETF-dominated world, the dominant ETFs have replaced minor sector indexes as the leading benchmarks of choice. So to mainstreamers not steeped in gold-stock trading experience, GDX is the gold-stock sector,” according to Zeal Investing.
GDX is home to many of the same stocks that are found in the Gold Bugs Index, though at different weights, and some that are not found in that index. For example, Barrick Gold (NYSE: ABX) and Goldcorp (NYSE: GG) combine for 27% of the ETF’s weight, but 29.5% of the Gold Bugs Index. Silver Wheaton is GDX’s fourth-largest holding at 5.3%. That stock is not a member of the Gold Bugs Index. [Mining ETFs Finally Topping Physical Gold]
GDX’s “weighting methodology is better than the HUI’s. With only 18 component stocks compared to GDX’s 39, market-cap weighting is a lot harder. So the HUI’s custodians essentially assign the top two companies a weighting near 15% each, the third around 10%, and then split the remaining 60% among the remaining components roughly equally. This gives the smaller companies an outsized index impact,” notes Zeal.
Last September, the NYSE Arca Gold Miners Index, GDX’s underlying index, opened to companies that trade outside of the U.S., but the index also started excluding miners with market values below $750 million, so the ETF is not heavily allocated to small- and micro-cap miners. [GDX Goes Along With Index Changes]
GDX has taken in almost $585 million in new assets this year, bring its assets under management total to $7.8 billion. With $7.8 billion, GDX is larger than the largest China, consumer staples and biotech ETFs, just to name a few. It is also the second-largest gold-related ETF in the U.S. behind the SPDR Gold Shares (NYSEArca: GLD).