Christian Magoon: What is the best gold ETF in 2012? Probably not one you own. Many are familiar with the four largest gold ETFs which account for the majority of all assets in gold ETFs. On the physical gold side there is the SPDR Gold Trust (NYSEARCA:GLD) and the iShares Gold Trust (NYSEARCA:IAU) which combined hold about $73 billion of investor assets. On the gold stock side resides Market Vectors, gold mining ETFs, GDX and (NYSEARCA:GDXJ). Combined they hold close to $8 billion of assets however, these ETFs are not even close to being the best gold ETF in 2012.
The aforementioned ETFs are dramatically trailing the little known $17 million Direxion Daily Gold Miners Bear 3X Shares ETF (NYSEARCA:DUST). Perhaps trailing isn’t the best word to describe the disparity in performance between the best gold ETF and the four most widely owned gold ETFs. Currently 1,650bps – over 16 percentage points – separates the best performing gold ETF from the best of the big four, the iShares Gold Trust. DUST is obliterating the competition this year. Here’s a snapshot from the gold ETF performance grid on GoldETFs.biz displaying the top five performing gold ETF and ETN products in 2012.
DUST, is an ETF that is designed to produce on a daily basis 3X the opposite performance of the gold miners index it tracks. It is an aggressive product but one that was tailor made for the free fall that has happened in gold and gold stocks since the end of February. Here’s a comparison since February of the best gold ETF relative to the largest physical gold ETF, GLD, and the largest gold mining ETF (NYSEARCA:GDX).
While DUST has come off its highs of late due to rallies in gold, it still maintains a sizable performance lead. This is needed as it is a 3X product and can move quickly. Remember, leveraged ETFs like DUST are generally designed to be held for one day or less. They are highly volatile, require constant monitoring and thus are best used by sophisticated investors or traders. Always read a prospectus before investing in any ETF but particularly leveraged ETFs.
While many long gold investors – either in gold or gold stock ETFs – have been feeling the pain, DUST has quietly made a run to the top performing slot. While DUST is designed to be a short term trading vehicle, it nonetheless could be an option to hedge a portfolio’s exposure to gold on a daily basis. And since it is leveraged 3 times, a dollar of exposure to DUST could potentially hedge a $3 dollar of exposure to gold or gold stocks.
Going forward or backward, most investors wouldn’t have picked a gold stock ETF that was bearish and leveraged by 3X to be the best performing gold ETF this year. However, a predictable trait of investing and markets in general is that they are unpredictable and the best gold ETF proves this once again.
Christian Magoon is Publisher of GoldETFs.biz and IndiaETFs.com. He is also CEO of Magoon Capital, a strategic consultant firm to asset managers. Christian Magoon is an ETF insider, having launched over 40 ETFs in the United States to date. A widely recognized thought leader on finance and market issues, Christian regularly contributes to many financial media outlets. Prior to forming Magoon Capital in 2010, Christian was President of Claymore Securities (now Guggenheim Investments), where he built one of the fastest growing and most innovative ETF businesses in the country, gathering more than $3 billion in AUM in three years. He launched more than 40 ETFs, introducing many “firsts” to the U.S. market, including the first Frontier Markets, Sector Rotation, Solar Energy, Timber, BRIC and suite of China focused ETFs. Christian consistently provides his industry insights and knowledge as a commentator in the U.S. media speaking publicly on macro investment issues and ETF related topics. Follow him on Twitter@ChristianMagoon. In 2008, he was named by Institutional Investor News as one of the five people to watch in the U.S. ETF marketplace. In 2011, Financial Planning magazine dubbed Christian an “ETF Pioneer.”