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Sprott Gold Miners ETF (SGDM): What You Need To Know 

TABLE OF CONTENTS

Sprott Gold Miners ETF (SGDM): What You Need To Know 

Sprott Gold Miners ETF (SGDM): What You Need To Know 

Vantage Updated Updated Fri, 2024 January 26 03:10

Gold mining indices have become increasingly popular because they offer a unique way to invest in gold. However, you should consider a few factors before investing in gold or gold miners.

Should You Invest in Gold

If you are worried about inflation and other economic instabilities, gold may present you with an investing opportunity. Although in the short term, it can be as volatile as the stock market, gold tends to maintain its value in extreme, unexpected events, especially in the long run.

Three Ways to Invest in Gold

There are three ways to invest in gold: investing in physical gold, in shares of gold miners, and in gold mining ETFs or mutual funds [1].

Investing in physical gold can be challenging for investors who are used to investing in stocks and bonds due to the hassles and risks of safeguarding physical assets. The risks associated with investing in physical gold necessitate maintaining a storehouse, which will require you to pay storage, custodian fees and insurance.

Investing in shares of gold miners or refiners is much more streamlined compared to buying physical gold because it merely involves trading shares on a stock exchange. Owning the shares of gold miners directly makes you an investor or a shareholder of a gold mining company.

Investment in gold ETFs and mutual funds offer the long-term stability of gold price with relatively higher liquidity and more diversification than physical and individual gold stocks. There are many gold funds, and your broker can facilitate the transaction. When you invest in gold through an ETF or a mutual fund, you are a unit holder of that fund, not an owner of the gold mining company.

Depending on your own preference and risk tolerance, you may find one of the above three options a better fit. However, any investment has risks and gold is not an exception. The movement of the gold market can take a long time to learn — this makes gold ETFs and mutual funds the best option for most investors looking to add stability and return to their portfolios.

Regardless of which gold investment we are looking at, many industrial experts do not recommend holding more than 10-15% of gold in a portfolio.

Investing in Gold Through ETFs

Exchange-traded funds (ETFs) are pooled funds that enable you to make trades just like with individual stocks. However, instead of focusing on one type of security, an ETF exposes you to multiple underlying securities.

ETFs are often compared to mutual funds due to their broad diversification and high liquidity. However, ETFs take diversified investing to a different level by adopting a passive management style with focus on matching the underlying market index rather than actively selecting individual stocks as mutual funds do. Therefore, ETFs typically operate at a much lower cost and provide greater flexibility in trading, transparency, and better tax efficiency when investing money in taxable accounts. Like mutual funds, ETFs can be bought and sold on a stock exchange.

Gold ETFs vs Gold Miners ETFs Explained

A gold ETF tracks the price of physical gold and is a popular choice among investors. Unlike owners of physical gold, investors of gold ETFs do not need to worry about the physical storage of the gold. Additionally, since gold prices historically have a low correlation with the USD’s value, it’s an excellent addition to hedge against other volatile assets.

On the other hand, a gold miner ETF tracks a different asset index, such as a gold miners index, as opposed to a gold ETF. There is currently an array of indices available to invest with ETFs on gold miners such as the Solactive Gold Miners Custom Factors Index (SOLGMCFT).

Investing in Gold Miners ETFs

Disadvantages

Investing in gold-mining companies can be risky. The return on gold mining stocks is highly dependent on the gold price, which can be significantly influenced by various macroeconomic and geopolitical factors. However, the gold price is not the only factor driving the success of gold mining stocks. Production costs can also influence gold miners’ profit.

Shares of some small-cap gold-mining companies have underperformed as a result of unpredictable gold prices, over-leveraging, operational troubles in the mines, and geopolitical complications. This has resulted in some investors being disinterested in gold miners [2].

Advantages

Introducing Sprott Gold Miners ETF (SGDM). 

With SGDM, you will have access to a basket of companies that have a high-quality portfolio of mines, strong balance sheets, and high return potential.

SGDM uses the Solactive Gold Miners Custom Factors Index (SOLGMCFT), which captures the top 90% of revenue-producing gold miners and filters for the best returns. This allows investors to focus on companies with healthy financial performance and the potential to excel. The SGDM is widely considered a valuable resource for anyone interested in gold mining.

The fund invests in gold mining companies with a minimum market capitalization of USD 1 billion and high daily trading volume (minimum of 2 million shares per day).

SGDM Top Five Asset Holdings

The following table summarizes the top five holdings of SGDM [3]:

HoldingsMarketCapWeightCompany Domicile
Newmont CorpLarge-cap11.91%US
Barrick Gold CorpLarge-cap9.69%Canada
Franco-Nevada CorpLarge-cap9.54%Canada
Agnico Eagle Mines LtdLarge-cap8.27%Canada
Wheaton Precious Metals CorpLarge-cap6.85%Canada

SGDM Asset Selection Criteria

To be included in the Solactive Equal Weights Global Gold Index, companies must be from one of the Americas Gold Mining, Asia/Pacific Gold Mining and Other Gold Mining industries, and be listed on the Toronto Stock Exchange, the New York Stock Exchange and NASDAQ in the form of common stocks or American Depository Receipts (“ADRs”).

The SGDM ETF has strict guidelines for determining which underlying assets are available. On selection days, existing companies in the fund must have USD 375 million in market capitalization value, and new members must have market capitalizations of USD 750 million.

Furthermore, new members must have a minimum Average Daily Trade value. The trading volume threshold for new index members is at least USD 2 million, while existing index members must have a minimum Average Traded Value of at least USD 1 million over the past 1-month and 6-month periods [4].

SGDM Investment Strategies

The SGDM ETF adopts a passive management style to track the Underlying Index, SOLGMCFT, which is made up of major mining companies listed on the Toronto Stock Exchange, the New York Stock Exchange and the NASDAQ.

The SGDM ETF uses a modified weighted market capitalization mechanism in which any constituent asset will make up no more than 18% of the overall index weight, and no more than 50% of the overall index weight can consist of constituents with contributions greater than 4.5% in weight. The fund is reconstituted and rebalanced quarterly. At the time of writing, the top three corporate domiciles of companies in the SGDM ETF are Canada, the United States and South Africa.

Gold Investing with Vantage

Not all Gold Mining ETFs are created equal. The Sprott Gold Miners ETF has a strict selection procedure that ensures the inclusion of gold miners of the highest calibre, and it also provides the long-term stability of gold and allows you to have higher liquidity and offer more diversification than physical and individual gold stocks. 

Your broker is also your investment partner. Opening an account with Vantage is user-friendly. Vantage is multi-regulated broker which offers fast execution speed and excellent customer service. As a leading multi-asset trading broker, you have access to a wide variety of financial asset CFDs and index funds, and your portfolio will be protected as Vantage upholds the highest regulatory and compliance standards.

References

  1. “How To Invest In Gold – Forbes Advisor” https://www.forbes.com/advisor/investing/how-to-invest-in-gold/ Accessed 24 Nov 2022
  2. “3 Reasons To Buy Gold Miners Hand Over First – Seeking Alpha” https://seekingalpha.com/article/4473962-3-reasons-to-buy-gold-miners-hand-over-fist Accessed 24 Nov 2022
  3. “Sprott Gold Miners ETF – Sprott ETFs” https://www.sprottetfs.com/sgdm-sprott-gold-miners-etf Accessed 24 Nov 2022
  4. “Sprott ETF Trust – US Security and Exchange Commission Filings” https://www.sec.gov/Archives/edgar/data/1728683/000119312519141610/d737019dn1aa.htm Accessed 25 Nov 2022
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