Megaphone icon ETF Database is now VettaFi. Read More >
ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • Entrepreneur ETF
    • Equity ETF
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Future ETFs
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Modern Alpha
    • Multi-Asset
    • Multi-Factor
    • Nasdaq Investment Intelligence
    • Portfolio Strategies
    • Retirement Income
    • Smart Beta
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Videos & Podcasts
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Be Careful with Metals and Mining ETF Bargains
News
Share

Be Careful with Metals and Mining ETF Bargains

Stayan BojinovOct 06, 2015
2015-10-06

Everyone knows you have to “buy low” to come out on top. The problem is that few people are actually willing to endure however long it may take for the "real low” to be put in place.

Market-wide profit-taking pressures coupled with prolonged weakness in commodity prices, namely due to anemic global growth and a slowdown in China, have taken their toll on the industrial metal mining business since 2011. The August 2015 sell-off only worsened the outlook for metals and mining ETFs, and the extremely oversold conditions in the space have in turn lured many “bottom fishers” and “bargain hunters” out as they wait for the inevitable reversal.

Proceed with Caution in Metals & Mining

The problem with “low” prices, whether you’re referring to commodities, equities, or another security, is that the “low” is likely to last a lot longer than most might be ready and capable of waiting for. Put another way, a security that is extremely oversold can become even more oversold, and what’s even more painful is that it can remain that way for an awfully long period of time. There’s a lot of merit to the saying “The market can remain irrational longer than you can remain solvent,” after all.

In the case of industrial metals and mining stock prices, the fact that these securities have been so beaten down for so long isn’t a compelling enough reason to invest in them. You need to have a meaningful catalyst on the horizon that might spark a fundamental reversal, otherwise you’re merely speculating based on valuation.


Content continues below advertisement

Why the Pain Isn’t Over, Yet

Metals prices, and subsequently miners, have faced a number of headwinds that won’t be blowing over any time soon; in fact, they’re only strengthening. In addition to weak global growth expectations, metals prices are also suffering from the uncertainty surrounding China. Although there has been much thoughtful commentary circulating that challenges the notion that China’s collapse would ultimately bring down the U.S., what’s actually certain is that when it comes to metals, China matters in a big way.

Consider the following from a recent IMF blog post:

china metals impact

Authors Arezki and Matsumoto go on to add this point which embodies why the pain likely isn’t over yet for metals: “The slower pace of investment in China in the last few years, however, compounded by concerns over future demand amid the sharp stock market decline and currency devaluation this summer, have been exerting downward pressure on metal prices.”

Adding to the headwinds are a supply glut fueled by growing metals exploration and production efforts across emerging and frontier nations. All in all, until growth becomes more entrenched globally, it’s perhaps more probable that the mining sector will continue to underperform.

Ways to Play

There are three ways to play the Mining industry, with (XME A) being the most popular option.

For those that want to tap into metal’s prices instead, there are more than a dozen options, with (DBB A) the most popular one.

More experienced traders who wish to bet on more downside in the materials sector should consider inverse ETFs such as (SMN B) and (SBM B-).

The Bottom Line

An attractive valuation without a meaningful catalyst on the horizon is a speculative bet that conservative investors should shy away from. While it’s undeniable that industrial metals and mining ETFs appear to be trading at attractive discounts, the reality is that the fundamental headwinds working against this industry could persist for longer than most are willing to endure.

Follow me @SBojinov

Image courtesy of vectorolie at FreeDigitalPhotos.net

» Popular Pages

  • Tickers
  • Articles

Jun 24

As Inflation Rises, Try Equal Weighting Equity Holdings

Jun 24

Cybersecurity Investments Could be an Opportunity

Jun 24

Diversifying During Rate Hikes With a Real Estate ETF

Jun 24

Don't Ever Bet Against the S&P 500

Jun 24

Have We Reached Rock Bottom?

Jun 24

Coinbase Poised to Launch Derivatives Product

Jun 24

Any Time is the Right Time to Begin Investing

Jun 24

American Century’s Sandra Testani

Jun 24

Exxon Demands Higher Carbon Tax: This Fund Benefits

Jun 24

Gender Matters When it Comes to Retirement Planning

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

ARKK

ARK Innovation ETF

VTI

Vanguard Total Stock Market...

XLE

Energy Select Sector SPDR...

VYM

Vanguard High Dividend Yield...

IVV

iShares Core S&P 500 ETF

SCHD

Schwab US Dividend Equity ETF...

XLK

Technology Select Sector SPDR...


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
  • Mission Statement
  • Press
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © ETF Flows LLC
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X