GDXJ: More Mid-Cap, With A Lot Of Catch-Up Potential (NYSEARCA:GDXJ)

Gold (XAUUSD:CUR) has been strong in 2024. Gold mining stocks? Not so much. It seems investors are enamored with investing in the precious metal itself. But there is the very real possibility that gold miners start to play “catch up” to the metal. At least that’s the hope.

If you’re bullish on Gold Mining stocks getting some momentum given how well Gold itself has performed, then you may want to consider the VanEck Junior Gold Miners ETF (NYSEARCA:GDXJ). This fund gives you a chance to invest in smaller, up-and-coming gold mining companies.

The fund has been around since 2009, and seeks to track the MVIS Global Junior Gold Miners index. GDXJ tries to match the performance of small-cap companies that focus on gold and silver mining. Now, keep in mind that while these are small companies in the gold mining space, the ETF holdings are not entirely small-cap. The majority are actually classified as mid-cap, with large-caps getting a larger allocation than small-caps.

A Look At The Holdings

Typically, when you look at highly specialized funds like this, there’s big concentration at the top. And that’s what we find here. The top 4 positions make up nearly a quarter of the fund overall. Granted, these are the larger players in the junior space, but that, of course, makes the fund more volatile.

The volatility in the gold mining space is worth keeping in mind as you consider investing in this fund. Gold mining stocks independent of size tend to be volatile, and junior companies tend to have that price movement amplified. This may not bother you, especially if you’re a long-term investor who prefers investing based on cheap fundamentals. And with GDXJ you do get that given the Price-to-Book ratio currently of just 1.69x.

Geographic Weightings

One of the things I like about GDXJ is that it’s global by nature, given where these gold miners operate. The majority of these companies are doing their Gold mining operations in US dollars, but notice that there’s exposure to other countries as well through Australia, Canada, and other parts of the world.

Peer Comparison

Since this focuses more on the junior mining side of the gold mining space, it’s worth comparing this fund against the VanEck Vectors Gold Miners ETF (GDX) which targets larger gold mining companies. When we look at the price ratio of GDJX relative to GDX, we find that junior minors have underperformed. Now, in fairness, this perhaps shouldn’t be a big surprise. Small-caps in general have lagged large-caps in nearly all sectors and across all countries. If you believe that will change, that might soon show up in GDXJ outperforming in the coming years due to GDX holding larger companies in the space.

Pros and Cons

On the positive side, GDXJ lets you invest in smaller market-cap gold mining companies that could grow significantly, without being overly small but tilting more towards the mid-cap side. If the catch-up thesis is real, then one would expect these companies could run hard momentum-wise given lower liquidity overall. And because this fund is spread out across multiple gold mining stocks, it’s easy to get exposure without having to worry about bid/ask spreads across individual gold mining stocks. This might be considerably difficult to trade in and out of.

But this works both ways, making things riskier when gold prices fall. Junior miners are often still looking for gold, which can make their stocks jump around more. And as we’ve seen this year, it’s key to know that how gold miners do doesn’t always match up with gold prices. That is what makes this kind of investment even trickier to figure out as it can be dependent upon currency exposures, oil prices from a fundamental perspective, and geopolitical factors.

Conclusion

The VanEck Junior Gold Miners ETF gives you a chance to put your money into smaller, growing gold mining companies. This ETF lets you invest in a mix of junior miners, which might boost your returns when gold prices go up. But keep in mind, this works both ways, making it riskier when gold prices fall and the link isn’t always that strong.

Still, I think this is a good fund for what it’s designed to do. I, personally, think Gold Miners broadly are due to get some momentum in the near future, with smaller/mid-cap companies likely the biggest beneficiaries.