Global X continued an aggressive expansion of its ETF lineup on Tuesday, announcing the launch of two funds offering exposure to companies engaged in the extraction and production of widely-traded commodities. The Pure Gold Miners ETF (GGGG) will seek to replicate the Solactive Global Pure Gold Miners Index, while the Oil Equities ETF (XOIL) is linked to the Solactive Global Oil Equities Index.
GGGG will invest in global companies that generate the vast majority of their business from gold mining. Because the profitability of gold miners depends on the prevailing market price for their products (i.e., gold bullion), these stocks generally move in the same direction as spot gold. Gold miner ETFs have become a popular tool for playing gold prices, in part because they often trade as a leveraged play on spot precious metals prices. Mining stocks can also be appealing to investors who are looking to achieve gold exposure but are hesitant to invest in a commodity that has no associated cash flows [see ETF Options For Contango-Free Commodity Exposure].
Current gold miner ETF options include the Market Vectors Gold Miners ETF (GDX) and Junior Gold Miners ETF (GDXJ). Global X also offers a fund that focuses on gold explorers, a more speculative asset class that is literally focused on striking gold. GGGG will be different from GDX because it focuses exclusively on pure play gold miners. While there will be considerable overlap with GDX–Goldcorp and Kinross Gold are major components of each–GGGG will avoid companies whose operations include mining for other precious and industrial metals as well. Many gold mining companies generate significant portions of revenue from copper, silver, and other metals, potentially diminishing the correlation between performance and gold price. “Not all gold miner ETFs are created equal and Global X Funds is the first to provide one which is a pure play on gold miners,” said Bruno del Ama, chief executive officer of Global X Funds.
The largest individual allocations in GGGG are to Kinross Gold (15%) and Anglogold Ashanti (15%). From a country perspective, Canada makes up about 40% of assets followed by South Africa (15%), the U.S.(11%), and Australia (9%).
Oil Equities ETF Debuts
The other addition to the Global X product lineup is the Oil Equities ETF, which also takes a unique approach to offering commodity exposure through equities. The underlying index is an equal weighted benchmark consisting of 25 global companies that have historically shown a high correlation to the spot price of oil. Component companies derive the majority of their revenues from the exploration and production of oil and/or have significant oil reserves, and the focus on companies with a high correlation to oil prices will generally avoid those involved in other industries such as natural gas or downstream operations. “We are offering a product for investors looking for exposure to oil while avoiding issues such as contango that reduce their returns,” said del Ama.
There are a number of ETFs offering exposure to the global oil industry, including funds targeting exploration and production firms and equipment and services providers. Most are dominated by a handful of mega cap companies; XLE allocates about 30% of assets between ExxonMobil and Chevron, while the iShares S&P Global Energy Index Fund (IXC) gives about 30% to those two names. The equal-weighted feature of XOIL’s underlying index will minimize concentration of company-specific risk, while the focus on companies exhibiting a high correlation to spot oil prices may make the new fund a better proxy for oil than other energy equity ETFs.
First Trust offers a fund linked to an index that determines holdings partially on their correlation to spot natural gas prices; the ISE Revere Natural Gas ETF (FCG) has become a popular option for investors looking for natural gas exposure but hesitant to expose assets to contangoed futures markets [see Natural Gas ETFs: Seven Ways To Play].
GGGG will charge an expense ratio of 0.59%, slightly below the 0.63% average for the Commodity Producers Equities ETFdb Category. XOIL will charge 0.49%; the average for the Energy Equities ETFdb Category is 0.51%.
Disclosure: No positions at time of writing.