US Global’s New Gold ETF Screens Out High-Debt Miners

We like this “revenue-per-employee” metric to find good precious metals investments.

Texas-based investment adviser US Global Investors has launched the US Global GO GOLD and Precious Metal Miners ETF (NYSE Arca: GOAU), tracking the performance of companies engaged in the production of precious metals either actively (through mining or production) or passively (through owning royalties and production streams).

GOAU follows the US Global GO GOLD and Precious Metal Miners Index which uses a smart factor, rules-based model to select common stocks of mining or royalty companies listed on developed market exchanges across the globe.

Royalty companies serve as special financiers that provide upfront capital to help fund producers’ exploration and production projects. In return, they receive royalties on whatever is produced or rights to a “stream” – an agreed-upon amount of gold, silver or other precious metal at a fixed, lower-than-market price.

According to US Global Investors, royalty companies can possibly help investors manage many common risks associated with traditional producers. In addition, royalty companies have a history of rewarding their investors by increasing dividends at a faster pace than the broader equity market, according to research by Dundee Capital Markets.

“US Global Investors has a long-standing history in the precious metals space; we are known for gold, and our boots-on-the-ground knowledge of the industry is strong,” said Frank Holmes, CEO and CIO of US Global Investors. “Throughout our years of investing in the gold mining space, we have found that royalty companies have tended to be excellent allocators of capital, taking on very little debt and deploying cash reserves only at the most opportune times.”

The index seeks to identify companies with strong balance sheets and attractive portfolios of active mines, among other factors, and screens out companies that rely primarily on debt to finance their business. It further differentiates itself from traditional gold miner indices by placing increased emphasis on firms showing the highest revenue per employee.

The three highest-scoring North American-listed companies according to the index’s methodology, with a minimum market cap of $1bn, receive a weight of 10% each. The next five highest-scoring companies that are either domiciled in North America, or have a US-listed ADR and are domiciled in South Africa, the UK or Australia, with a minimum $400m market cap, receive a weight of 4% each. The next ten highest-scoring companies that are either domiciled in North America, or have a US-listed ADR and are domiciled in South Africa or the UK, and have a minimum market cap of $200m, receive a weight of 3% each. The next ten highest-scoring companies that are domiciled outside of North America and have a market cap of at least $200 million receive a weight of 2% each. The index is rebalanced and reconstituted quarterly.

Currently the three largest constituents, each having received a 10% weight allocation, are Royal Gold, Wheaton Precious Metals and Franco Nevada.

GOAU has a total expense ratio of 0.60%.

Full story at ETF Strategy

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