Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some gold companies to your portfolio, the Global X Pure Gold Miners ETF (NYSE: GGGG) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously. It focuses mostly on non-U.S. companies, offering geographic diversification, and its dividend yield was recently 2.1%.
ETFs often sport lower expense ratios than their mutual fund cousins. The gold-miner ETF's expense ratio -- its annual fee -- is 0.59%. The fund is very small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF doesn't have much of a track record to assess yet, though it underperformed the world market over the past year. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why gold miners?
Investors and experts are usually divided on the attractiveness of gold as an investment. Its overall long-term record isn't too shiny but, at times, it has served investors well. Parking everything in gold is certainly risky, but adding a little gold to your mix can deliver some diversification.
Many gold-mining companies didn't do too well over the past year, but they could see their fortunes change in the coming years. Kinross Gold (NYSE:KGC), for example, sank 29%. As my colleague Sean Williams has explained:
Like most mining companies, Kinross Gold is suffering from a mixture of higher labor, diesel, power, and royalty costs which are increasing its cash cost per ounce and making it less efficient to mine.
Rising costs have also led Kinross to delay beefing up its capacity, which has hampered it. Kinross's revenue has been growing, slowly, but so has its share count and debt, while free cash flow and net income are in the red.
Gold Resource (NYSE: GORO) shed 23%. Its dividend has drawn much attention, not just for topping 4%, but also because shareholders can opt to receive it in gold and silver bullion. The young company enjoys a low cost structure, but got whacked when it lowered its production forecast recently. That only served to make it more attractive to some investors.
Aurizon Mines (NYSE: AZK) and Eldorado Gold (NYSE:EGO) each slipped 21% over the past year. Aurizon Mines is attractive for its Casa Berardi mine in Canada. Its revenue and cash are growing, while it carries little to no debt, and is free-cash-flow positive. The healthy company has some speculating that it might get bought out. Eldorado's financial statements aren't quite that lovely, but its debt is offset by ample cash, though its free cash flow turned negative recently. Its stock has average annual gains of about 18% over the past five years, and it has been expanding its operations, in China, Greece, and elsewhere. The stock has gained about 50% since my colleague Chris Barked deemed it "an incredible bargain."
The big picture
Long-term demand for gold isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.