Owning shares of junior gold miners is a great way to wager on the gold price. The Direxion Daily Junior Gold Miners Bull 2X ETF (NYSEARCA:JNUG) lets you own a small piece of some really solid companies in the resource sector. With the JNUG ETF, you can sit back and let the fund managers do the heavy lifting.
That’s because the company that Direxion, the company that controls the fund, has selected some of the top names in junior gold mining for inclusion in JNUG. Besides, using an ETF is a simple yet effective way to diversify in an admittedly volatile market sector.
Junior gold miners have done well in recent months, and perhaps you’d like to participate in what could be the beginning of a bull market in resource stocks. If so, then let’s learn more about the JNUG ETF and how its historical performance may suggest future upside.
A Closer Look at the JNUG ETF
Getting down to the nitty-gritty of the price action in JNUG, we can discern strong negative price pressure in February and March. The obvious culprit is the onset of the novel coronavirus. Unfortunately, this black-swan event caused a number of gold mines to be shut down for a while.
After bottoming out at $33.20 in March, however, the resurgence of JNUG has been forceful. Now its blasted past $150. That represents a quadrupling of the share price from the 52-week low.
That being said, it should be noted that the JNUG ETF historically has had a tendency to lose value over time. Therefore, traders should only maintain a bullish perspective for a year or less. Any time frame beyond that is probably too risky.
Don’t Hold It for Too Long
InvestorPlace contributor Laura Hoy does an excellent job at summing up why the JNUG ETF isn’t really meant to be held for a long time:
“It tracks the MVIS Global Junior Gold Miners Index and aims at delivering a 200% or -200% return for that index each day. Importantly, the ‘single day’ aspect of JNUG’s leverage means it’s not a stock you can add to your portfolio and hold on to because the losses will add up.”
This explains the negative long-term historical price action in JNUG. Still, this doesn’t mean that no one should ever trade JNUG. The index that the fund tracks is closely correlated with the gold price. So, if you believe that the gold price will increase in the near term, then buying this ETF could make perfect sense.
Not everyone has a large trading account, and a double-leveraged fund can provide magnified exposure. This allows smaller-sized investors to book bigger profits when their directional expectations are right. Just be advised that double-leveraged funds not only go up fast sometimes, but also oftentimes go down quickly.
A Strong Selection
Perhaps the best feature of JNUG is its selection of power players in the junior gold mining space. We’re talking about billion-dollar companies with global presences. Among the top holdings of the fund’s index are:
- Kinross Gold (NYSE:KGC)
- Yamana Gold (NYSE:AUY)
- B2Gold (NYSEAMERICAN:BTG)
- Gold Fields (NYSE:GFI)
- Evolution Mining (OTCMKTS:CAHPF)
- Northern Star Resources (OTCMKTS:NESRF)
Don’t let the term “junior gold miners” deceive you. The companies listed above all have market capitalizations exceeding $1 billion and are highly respected within the industry.
Plus, JNUG offers geographical diversification. The underlying index’s holdings span the globe, from Canada and the United States to Australia, South Africa, Mexico, China and other nations.
The Bottom Line
With the JNUG ETF, you can achieve diversified exposure to some of the resource sector’s biggest names with hardly any effort. Just be aware of the risks as JNUG is meant for near-term leverage and not for buy-and-hold strategies.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
