The Market Vectors Junior Gold Miners ETF (GDXJ) attempts to replicate the price and yield performance of the Market Vectors Junior Gold Miners Index.

The underlying index for this exchange-traded fund (ETF) offers investors exposure to a worldwide span of companies, both small- and mid-cap, which are publicly traded. These companies do one of three things: generate a minimum of 50% of their revenue from gold and/or silver mining; hold physical property with the potential to produce at least 50% of their revenue from gold and silver mining after the metals are developed; or they invest primarily in gold or silver. Generally, a minimum of 80% of the fund's total assets are invested in companies that are actively involved in the gold mining industry.

Three primary sectors hold the majority of GDXJ's assets. The gold sector is by far the largest, holding over 65% of the fund's total assets. The next-largest sector, precious metals and minerals, holds far less assets at 18.31%. The third primary sector is integrated mining, which holds approximately 15% of the fund's total assets.

The top 10 holdings for this fund make up less than half of the total assets but hold the most weight. The top five holdings include Osisko Gold Royalties Ltd., Hecla Mining Company, Centamin PLC, Northern Star Resources and NovaGold Resources.

Characteristics

The Market Vectors Junior Gold Miners ETF is essentially the younger brother ETF of the Market Vectors Gold Miners ETF. It was launched in November 2009 by Van Eck Associates. This ETF is traded on the NYSE ARCA exchange.

This fund has a total asset value of approximately $1.4 billion. It has an expense ratio of 0.55 and a dividend yield of 0.8. The price-to-book ratio for this fund is 0.81%. The beta for this fund is 0.02 in comparison to the S&P 500 Index. It also has a volatility level of 43.77. The Sharpe ratio for the fund is -0.71.

This portfolio has significantly greater market risk. Its average market cap is about $700 million, which is minimal when compared to the benchmark's $7 billion cap. There is also greater risk associated with the smaller mining firms that this ETF encompasses. The average price-to-earnings ratio for this fund is -8.46. The value is negative due largely to the fact that a majority of the companies within the portfolio generate no revenue or earnings. These aspects make the fund an option only for aggressive investors who can afford to take on significant risk.

There is a large split between small- and mid-cap companies in this fund. Mid-cap companies, having $1 billion to $5 billion caps, account for approximately 25.6% of the fund's total assets. Small-cap companies, having caps of less than $1 billion, account for approximately 73.8% of the fund's assets.

The assets of this fund are held in a number of different countries, with three primary countries holding the greatest amount of asset weight. Canada sits at the top, holding 59.9% of the fund's total assets. Australia is next at 14.5%. The United States is third, holding approximately 10.3% of this fund's assets.

This fund has a currency exposure risk of 42.01% to the U.S. dollar, 34.59% to the Canadian dollar and 10.71% to the Australian dollar.

Suitability and Recommendations

This ETF offers investors a globally diversified portfolio of small- and mid-cap gold mining firms, so it is appropriate for investors who are specifically seeking to diversify their total investment portfolios with exposure to smaller mining companies. While the fund has not performed well to date, it could offer excellent returns on a resurgence in gold prices. Smaller mining companies carry more risk than larger, more well-established companies, but they also offer significantly higher growth potential. Many of the junior miners now trade at significant discounts to net asset value, which essentially means that in the event of liquidation, the company would be worth more than its current market value. This ETF has a price-to-book value of only 1.03, making it potentially attractive to value investors.

(For more on this ETF, read GDX versus GDXJ.)

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