This New ETF is Challenging the GDX and GDXJ

When US Global Investors (NASDAQ:GROW) launched its second ETF over the summer, CEO Frank Holmes described it as a viable and preferable alternative to other similar offerings. 
“I believe it’s the only intelligent gold equity ETF out there,” he said at the time, adding that the ETF, known as the US Global GO GOLD and Precious Metal Miners ETF (ARCA:GOAU), outperforms the GDX (ARCA:GDX) and GDXJ (ARCA:GDXJ) “95 percent of the time in a row on a 12-month basis.”
Speaking via phone to the Investing News Network, Sam Pelaez reaffirmed that claim. “So far it has done exactly what we expected it to do,” he said of the ETF. “We encourage investors to pull up the charts for the GDX, the GDXJ and our product in the US to see for themselves.”

Pelaez is chief investment officer at Galileo Global, a Toronto-based subsidiary of US Global Investors, and together the companies recently launched the Canadian listing of the US Global GO GOLD and Precious Metal Miners ETF. It trades on the TSX under the symbol GOGO, and like its US counterpart, has a number of factors that make it stand out against other gold equity ETFs.
“We do not like the current ETF investing space,” said Pelaez. “The main reason being that most of the products track indices that are market cap based. So they allocate the money disproportionately to the larger companies, and to a lesser extent to the smaller companies, with no regard to management, efficiency, capital allocation or any of the real factors or things that a smart investor would look at.”
To combat those issues, US Global Investors based the US Global GO GOLD and Precious Metal Miners ETF off of its own index, which it created using a smart-factor, rules-based model. “[The index] is essentially a product of US Global Investors’ expertise in the gold investing sector,” Pelaez explained, adding that 8,000 to 10,000 hours of research went into testing different factors and models.
“What we ended up finding out was nothing surprising,” he continued. “Companies that outperform over the long term have management teams that are better capital allocators than their peers, as measured by things like return on investing capital.” Pelaez added, “we also found out that companies that have extreme levels of indebtedness don’t outperform over the long term.”
The US Global GO GOLD and Precious Metal Miners ETF includes 28 precious metals companies, with an emphasis on North American royalty and streaming companies. When asked about that focus, Pelaez said that while it’s possible for gold producers to gain spots on the ETF, US Global Investors has found that when the factors above are considered, royalty and streaming companies tend to come out on top.
Thus far, investors have been responding well to the ETF. Commenting on its appeal, Pelaez noted that when a well-known New York-based gold investor was presented with the ETF his first response was, “I hate ETFs.” His second response? “I love this ETF.”
“It gives you the idea that it’s a novel product in a space that’s a little bit tired,” said Pelaez, also stating, “I believe our products … are one big step in a transformation where technology is going to be leveraged in a way that was not available before to create better products in the same space for the same cost.”
In closing, Pelaez shared his thoughts on where he sees gold going as we head into the end of 2017. “This is traditionally a strong seasonal period for gold … we definitely always keep an eye out for that towards the end of Q3, Q4 and into the Chinese New Year, which is late January or February,” he said.
He also pointed out that while gold is one of the year’s better-performing commodities, equities have not responded to the extent that would normally be expected. “Generally when you have upswings like the one we’ve had this year, the equities outperform to a ratio of about 3 to 1. This year that ratio is about 0.5 to 1, so the equities are only up about half what the commodity has gained.”
Pelaez sees that discrepancy as a potential opportunity to invest in gold stocks or products like the US Global GO GOLD and Precious Metal Miners ETF. “We believe this product in a way democratizes access to good gold investors,” he said. “We’re essentially making our knowledge … available to Canadian investors and anybody around the world.”
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.