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Mining ETFs & Stocks Benefit Most from Fed Meeting

As expected, the Fed raised interest rates by 25 bps to 0.75–1% citing strong economic data and rising inflation, which is heading toward the 2% target. This represents the third rate hike in 10 years. Additionally, the central bank hinted at a more gradual pace of rate hikes this year even if inflation runs above the 2% target, reiterating its outlook for two more rate hikes this year and three in the next. This indicates an accommodative monetary policy for more months.

While the Fed meeting yesterday revealed no surprises, the market saw an unexpected move in the previous metal space, in particular gold and silver. This is especially true as the yellow metal jumped 2% to nearly $1,225 per ounce while the white metal climbed 3% to $17.45 per ounce. This has set gold for the biggest gain since September and silver for the best day since November.

A rate hike is generally bad news for these metals as higher interest rates diminish their attractiveness since they does not pay interest like fixed-income assets. But the opposite reaction was witnessed this time with many analysts calling the event “sell the rumor (of rate hike), buy the news” (read: Time to Buy Gold ETFs on the Dip?).

The impressive gains came on the heels of the Fed’s less hawkish outlook than expected. Markets were bracing for a faster pace of rate hike given the Fed’s earlier statements and accelerating economic fundamentals. Less chances of further tightening has led to a sharp decline in the U.S. dollar against a basket of major currencies and raised the appeal for the two precious metals.

Acting as leveraged plays on underlying metal prices, metal miners witnessed more gains than their bullion cousins on the day. As a result, we have highlighted four mining ETFs and stocks that benefited the most from the Fed meeting and will likely to continue its strong performance given the dovish stance.

ETFs

VanEck Vectors Junior Gold Miners ETF GDXJ – Up 11.5%


GDXJ emerged as the biggest winner post Fed meeting. This is a small cap centric ETF that tracks the MVIS Global Junior Gold Miners Index. Holding 54 stocks in its basket, it is well spread out across components with none holding more than 5.53% of assets. Canadian firms dominate the fund’s portfolio at 63.3%, though Australia (11.5%) and the U.S. (10.4%) round out the top three. The product is by far the largest and most popular in the gold mining space with AUM of $4.8 billion and charges 56 bps in annual fees.

Sprott Junior Gold Miners ETF SGDJ – Up 10.4%

This ETF targets the small cap segment of the gold mining industry by tracking the Sprott Zacks Junior Gold Miners Index. The benchmark utilizes the factor-based methodology that seeks to emphasize companies with the strongest relative revenue growth and price momentum. In total, the fund holds a small basket of 37 stocks with each firm holding no more than 7.8% of assets. In terms of country exposure, Canada takes the largest share at 75% while the U.S. receives just 6% of SGDJ. The fund has accumulated $48.5 million in AUM and has an expense ratio of 0.57%.

Global X Silver Miners ETF SIL – Up 9.0%

This fund offers exposure to a basket of 26 silver mining companies by tracking the Solactive Global Silver Miners Total Return Index. It is highly concentrated on the top four firms that collectively make up for 45% of the portfolio while others account for less than 5.9% share. About half of the portfolio is focused on small caps while the rest is evenly split between large and mid caps. Here again, Canadian firms takes the top spot at 49% while Mexico and U.S. round off the next two with a double-digit exposure each. SIL has amassed $334.7 million in its asset base and charges 65 bps in fees per year (see: all the Material ETFs here).

Global X Gold Explorers ETF GOEX – Up 8.9%

The ETF provides exposure to companies involved in the exploration of gold deposits and tracks the Solactive Global Gold Explorers & Developers Total Return Transition Index. Holding 52 stocks in its basket, it is focused on small cap with 83% share and each security accounting for less than 5.6% of assets. Canadian firms dominate the fund’s return at 72% followed by Australia and United Kingdom. The fund is unpopular and illiquid with AUM of $42.7 million. Expense ratio comes in at 0.66%

Stocks

IAMGOLD Corporation IAG – Up 14.4%


Based in Canada, IAMGOLD is an international gold exploration and mining company. It has a Zacks Rank #3 (Hold) with a VGM Style Score of D and a market cap of $1.79 billion.

McEwen Mining Inc. MUX – up 14.1%

Based in Canada, McEwen Mining explores, develops, produces, and sells precious and base metals – gold, silver, and copper – in Argentina, Mexico, and the United States. It has a Zacks Rank #3 with a VGM Style Score of F and a market cap of $1.02 billion.

Endeavour Silver Corporation EXK – Up 13.2%

Based in Canada, Endeavour Silver is a small-cap silver mining company focused on the growth of its silver production, reserves and resources in Mexico. It has a Zacks Rank #5 (Strong Sell) with a VGM Style Score of D and a market cap of $453.9 million (read: Will Trump's New Policies Hurt These Sector ETFs & Stocks?).

Harmony Gold Mining Company Limited HMY – Up 13.1%

Based in South Africa, Harmony Gold engaged in the exploration and mining of gold in South Africa and Papua New Guinea. It has a Zacks Rank #3 with a VGM Style Score of B and a market cap of $1.09 billion.

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Iamgold Corporation (IAG): Free Stock Analysis Report
 
Harmony Gold Mining Company Limited (HMY): Free Stock Analysis Report
 
Endeavour Silver Corporation (EXK): Free Stock Analysis Report
 
VANECK-JR GOLD (GDXJ): ETF Research Reports
 
McEwen Mining Inc. (MUX): Free Stock Analysis Report
 
SPROTT-JR GLD M (SGDJ): ETF Research Reports
 
GLBL-X SILVER (SIL): ETF Research Reports
 
GLBL-X GOLD EXP (GOEX): ETF Research Reports
 
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