GDXJ VanEck Junior Gold Miners ETF

Gold miners have been extremely volatile as of late as gold prices have wildly oscillated. And since miners often trade as a more explosive play on the underlying metal, there have definitely been some big moves in the miner ETF world recently.

This is particularly true when investors look to the leveraged gold miner ETF space, with products like Daily Gold Miners Bull 3x Shares (NUGT) and Daily Gold Miners Bear 3x Shares (DUST). These two products—which look to take 300% daily moves of their underlying NYSE Arca Gold Miners Index—have seen truly astounding performances lately with DUST adding 41% in the past month, and NUGT losing a similar amount over the past 30 days (see all the leveraged equity ETFs here).

Clearly, big moves can happen in leveraged products targeting this space, making ETFs like this very interesting plays for short term traders in the metals space. And now, given the volatility and the heavy trader interest, it appears as if Direxion isn’t stopping at just the ‘regular’ gold miners, and that it is now expanding its leveraged and inverse lineup to the junior gold miners space too.

Junior Gold Miners in Focus

Stocks in this segment are even more volatile than their large cap counterparts, and can see even bigger moves when gold prices are either soaring or sliding. This makes these stocks great choices for those seeking big bang for your buck plays on a move in gold.

Currently, the space is dominated by the Market Vectors Junior Gold Miners ETF (GDXJ), an unleveraged ETF that has about $1.75 billion in assets, and sees volume of about one million shares a day. This fund now has some leveraged and inverse counterparts though, as Direxion has just released its Daily Junior Gold Miners Index Bull 3x Shares (JNUG) and the Daily Junior Gold Miners Index Bear 3x Shares (JDST).

These ETFs look to act as daily rebalancing cousins to GDXJ, tracking the same index but using 300% leverage. These give JNUG and JDST exposure to about 70 companies, with a focus on small caps (see 3 Small Cap Stocks Leading the Market Higher).

In terms of national exposure, Canada takes up nearly 60%, while Australia (20%), and the U.S. (9%) round out the top three countries.

For individual companies, no single firm makes up more than 6% of assets, while LionGold, Argonaut Gold, and Torex Gold Resources account for the current top three.

Both funds look to have net expense ratios of 95 basis points a year, putting them in line with many other leveraged and inverse ETFs, but quite a bit pricier than GDXJ’s 54 basis point cost per year.

How Do They Fit in a Portfolio?

These ETFs could be interesting picks for short-term traders who want to make a directional bet on small cap gold miners. Both JNUG and JDST look to have extreme levels of volatility, and huge moves should be expected in the funds (also see Why I Hate Volatility ETFs).

These ETFs shouldn’t be used by long term investors though, as the daily rebalancing and triple leverage make these inappropriate for buy-and-hold types. Additionally, bid ask spreads may be a bit wide in the beginning, especially if volume levels and assets are low initially.

Either way, these two represent more solid options in the gold mining space, and could be invaluable ways for traders to get a different type of exposure in the market.

“At a time when a growing number of investors are expressing interest in exposure to companies engaged in the exploration and production of gold, we are offering liquid exposure to this sector with the benefit of added leverage,” said Eric Falkeis, President of Direxion in a press release. “These two Funds are designed for traders that wish to take a bullish or bearish stance on the gold-mining industry.”

Bottom Line

Both NUGT and DUST have been very popular with investors, as both see millions of shares move hands every day. These have undoubtedly attracted interest thanks to their huge moves, and their ability to play off of gold in a big way (see Time to Buy Covered Call Gold and Silver ETFs?).

Both JNUG and JDST look to do the same thing, and if anything, will probably have bigger moves than their large cap-focused counterparts. This could make them very popular in short order, though buyers should definitely use extreme caution before diving into either one of these geared ETFs.

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