VanEck’s popular ETF, Junior Gold Miner ETF (GDXJ), which tracks the index MVIS Junior Gold Miner, has bit of a problem. This ETF has grown too large, at a market capitalization around $5 billion dollars. It has grown by $1.5 billion this year. By comparison, the more senior miner ETF, GDX, has around $10 billion in assets. RING, another gold miner ETF, has less than $200 million in assets.
So what’s the problem? The problem is that GDXJ has become too large of a holder of these small mining companies. In some companies, GDXJ is a 10% holder of their stock. So what is the solution? GDXJ was holding companies outside the index. Then, MVIS changed the index to include companies which large, institutional investors, typically wouldn’t invest in. 10% of its holdings are in GDX. They used to have 49 holdings, now they will have 68 holdings. The changes to the index will be made by June 17th.
Is this bad news for gold investors, or gold miner investors? Not at all! Gold represents 0.15% of pension fund holdings. Gold equities also represent 0.15% of pension fund holdings. Say the percentage of their holdings doubled to a small 0.3% of gold and gold mining shares respectively. That would mean $100 billion dollars, which would mean you could buy every share of GDX, GDXJ, XAU, and GLD. This is only 0.3% of their holdings. What if it went to 3%? Do you see how small the market is? Gold and silver reside in a small boat, it won’t take much of a wave to it over.