The VanEck Vectors Global Mining UCITS ETF is to date the first ETF in Europe to enable global exposure for investors in metal and mining companies from developed and emerging markets. ETF Stream spoke to Dominik Poiger, a trader in ETF portfolio management at the company, to discuss why - with global synchronized growth likely to support prices - now is the time for investors to consider a commodities ETF.
Can you explain in detail this new product?
The index comprises countries such as the UK, Canada, Australia, the USA, Brazil, Mexico, South Africa, Russia and China. The ETF also offers a broadly diversified portfolio of mining companies that extract Gold, Silver, Copper, Nickel, Zinc, Lead, Aluminum, Iron Ore, Thermal Coal, Metallurgical Coal, Cobalt, Lithium etc. The index comprises 160 equities in 24 markets (as of 31 March 2018). The ETF uses physical replication and reinvests income.
Why is now a good time to be launching a metal and mining-based ETF?
Driven by an ongoing industry-wide restructuring theme, the mining stocks are breaking out of a multi-year downtrend. The sector is now focusing increasingly on returns on capital, returning free cash-flow to shareholders and improved profitability. Global synchronized growth should continue to support demand, while electric vehicles have the potential to be a disruptive force underpinning demand for commodities. There is long-term, structural support for metals in today's market. Steady demand levels and struggling supply should result in a tight market, which should support prices. Commodities deserve a place in a diversified portfolio particularly given its strong market fundamentals and it's potential as a hedge against inflation. What are the potential downsides to a metal and mining ETF that investors need to be aware of?
Investors should go through the legal documents and ensure that the investment suits their own objective and risk tolerance. Companies engaged in the production and distribution of basic materials may be adversely affected by changes in world events and volatile to commodity prices. What is the index for the fund and why has it been chosen?
The VanEck Vectors Global Mining UCITS ETF tracks performance of the EMIX Global Mining Constrained Weights Index (formerly Euromoney Global Mining Constrained Weights Index), a rule-based and weighted by market capitalisation index. The widely recognized index was launched in February 1989, giving it a track record of almost 30 years. History has shown that many actively-managed funds (of more than $6.4bn in AUM) have failed to consistently beat this index and tend to be more expensive than index-based funds. With this new fund ETF investors have a diversified way of accessing the global mining sector, which aims to eliminate the risks of picking individual stocks.
What are the charges for the fund?
The ETF is available on the London Stock Exchange at a Total Expense Ratio of 0.5%, a fraction of the cost of actively managed funds. Listings on Deutsche B√∂rse (XETRA), Borsa Italiana and six to follow in the short- term.