Gold equities and related exchange traded funds listed on the TMX finally came alive this week after significantly underperforming the TSX composite index since the beginning of March. They are showing early technical signs of recovering from oversold levels (albeit they are in the red today amid the weakness in the broader market).
Canadian investors can choose between five ETFs when interested in entering the gold sector. Each ETF has unique characteristics;
The most actively traded gold equity ETF in Canada is iShares S&P/TSX Global Gold Index fund The fund tracks the performance of 64 precious metal stocks that make up the S&P/TSX Global Gold index. The index is capitalization weighted. Largest holding in order of weight are: Barrick Gold, Goldcorp, Newmont Mining, Kinross Gold, Anglogold Ashanti and Agnico-Eagle Mines. Management expense ratio is 0.55 per cent.
Horizons offers the BetaPro S&P/TSX Global Gold Bull + ETF and the BetaPro S&P Global Gold Bear + ETF . Both are leveraged ETFs that track the S&P/TSX Global Gold index. The Bull ETF is designed to generate twice the daily upside performance of the index. The bear ETF is designed to generate twice the daily downside performance of the index. Management expense ratio is 1.15 per cent.
Horizons also offers the AlphaPro Enhanced Income Gold Producers ETF . The ETF tracks the performance of a portfolio holding 15 equally weighted senior global gold and silver producers. At or near the money listed call options are written against security positions. Option premiums and dividends earned by the fund are distributed to unit holders on a monthly basis. The strategy is enhanced by high implied volatility on the call options of senior gold producer stocks. Management expense ratio is 0.65 per cent.
Bank of Montreal offers the BMO Junior Gold Index ETF . The ETF tracks a diversified portfolio of 32 junior gold stocks that make up the Dow Jones North American Select Junior Gold index. The Index is capitalization weighted. Largest holdings are Allied Nevada Gold, Detour Gold, Coeur D'Alene Mines, Alamos Gold, AuRico Gold and Nova Gold Resources. Management expense ratio is 0.55 per cent.
Seasonal influences for gold and gold stocks appear to be starting earlier than usual this year. Thackray's 2011 Investor's guide notes that the period of seasonal strength for the gold sector is from July 12th to October 9th and the period of seasonal strength for the gold equity sector is from July 27th to September 25th. The equity sector trade was profitable in 17 of the past 25 periods for an average gain per period of 6.8 per cent.
On the charts, the iShares S&P/TSX Global Gold index has a negative, but improving, technical profile. Intermediate trend is down. Units trade below their 50- and 200-day moving averages. However, short-term momentum indicators (Stochastics, RSI and MACD) are recovering from oversold levels and price relative to the TSX Composite index and gold turned positive this week.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst for JovInvestment Inc. Reports are available at www.timingthemarket.ca and www.equityclock.com. Follow him on Twitter @EquityClock.