Sprott Asset Management, the Denver, CO based asset manager known for its skills in precious metals investment, recently rolled out its second gold miner exchange-traded fund after the first product raked in more than $180 million following its launch last year.
The newly launched Sprott Junior Gold Miners ETF (SGDJ) follows a factors based strategy and invests in smaller cap stocks, but like its predecessor, it tracks an index co-developed by Zacks Research & Sprott and is managed by ALPS Advisors.
SGDJ follows the Sprott Zacks Junior Gold Miners Index, the first factor based index that targets junior gold and silver miners in the US and Canada. The new fund, unlike the previously launched Sprott Gold Miners ETF (SGDM), selects the stocks in a different manner in that it focuses on more advanced stage companies with higher historical success rates.
The constituents of the index are weighted by using two factors, price momentum and revenue growth – to identify companies with stronger growth potential.
Sprott’s own research showed qualitative indexes outperformed market-cap weighted indexes in resource-based industries, because miners own assets that are capital intensive and are depleting and not self sustaining.
The underlying index considers a host of parameters such as return on capital employed, cash relative to debt and most importantly, revenue growth. Companies that are growing are selected while smaller companies that have limited means of generating revenue are left out. Companies that generate more free cash show greater immunity to price shocks and are less reliant on commodity prices, which tend to be cyclical.
The fund holds 30 to 40 junior gold stocks that meet certain liquidity requirements and have market capitalization between $250 million and $2 billion, though the floor can be lowered if the number of index constituents falls below 30.
The weights of individual constituents are capped at 9 percent, and the index is reconstituted semi-annually, in May and November, to ensure latest company performance is correctly captured. SGDJ can also invest in junior silver miners that meet the above criteria.
Geographically, Canada gets the maximum exposure at over 70 percent, followed by the US, South Africa, Australia and China.
SGDJ has an annual expense ratio of 0.57 percent.
Disclosure: No holdings