An unsolicited $4.8-billion takeover offer to acquire Lundin Mining Corp. by Equinox Minerals Ltd. was a major talking point at the Prospectors & Developers Association of Canada (PDAC) convention this weekend. Rumours circulated that Freeport McMoran Copper and Gold was about to make a higher offer. The world's largest metals and mining companies are flush with cash and are looking for attractive takeover targets. Smaller miners are trying to protect themselves through mergers. Deal making in the metals and mining sector is in the air. An easy way to participate in the sector is to own exchange traded funds that hold a diversified basket of metals and mining stocks.
A wide variety of ETFs in the sector are available. Each has its benefits and drawbacks. Understanding their content and structure are important before making an investment decision.
The best known Canadian index in the sector is the S&P/TSX Global Base Metals and Mining index. The Index is the basis of four ETFs that trade on the TMX. They are the Claymore Global Mining ETF , the Claymore Global Mining ETF Advisor Class , the Horizons BetaPro Global Base Metals Bull + ETF and the Horizons BetaPro Global Base Metals Bear + ETF . The Horizons Bull + ETF attempts to realize two times the daily upside performance of the Index and the Horizons Bear + ETF attempts to realize two times the daily downside performance of the Index. The Index consists of a basket of 143 base metal stocks that trade in equity markets in the U.S. and Canada. A word of caution! The Index is highly concentrated in two stocks, BHP Billiton and Rio Tinto. Together they represent approximately 37 percent of the value of the Index.
Bank on Montreal offers a base metal ETF with a couple of interesting twists. The BMO S&P/TSX Equal Weight Global Base Metals Hedged to CAD Index ETF consists of a basket of 48 of the most liquid stocks that are part of the S&P/TSX Global Base Metals and Mining Index. Each security is equally weighted. In other words, each holding initially weighed approximately 2.0 per cent of the portfolio. In addition, holdings with U.S. dollar exposure in the Index are hedged back to the Canadian Dollar.
The best known and most actively traded U.S. ETF in the sector is SPDR S&P Metals and Mining Index . The Index consists of a basket of 28 U.S. based metals and mining stocks listed on U.S. exchanges. Weights in the portfolio are approximately 36 per cent steel, 24 per cent coal, 14 per cent diversified metals and minerals, 12 per cent precious metals, 8 per cent aluminum, and 6 per cent gold.
Two specialty U.S. ETFs in the base metal sector also are available, Global X Copper Miners ETF and First Trust ISE Global Copper Index Fund .
On the charts, the SPDR S&P Metals and Mining Index ETF has a positive technical profile. Intermediate trend is up. Units recently bounced from their 50-day moving average. Resistance exists at $74.66.
Seasonal influences are positive at this time of year. The sector has a history of moving higher from the end of January to the end of May. Seasonal influences arrived as expected at the end of January.
Ownership in metals and mining ETFs and related equities makes sense at this time of year.
Don and Jon Vialoux are authors of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. Reports are available at http://TimingTheMarket.ca and http://EquityClock.com. They also are research analysts with JovInvestmentManagement Inc., which offers the Horizons AlphaPro Seasonal Rotation ETF traded on the TSX under ticker symbol HAC.
Companies & investments Mentioned In This Article (11)
LUN-T 4.2 -0.16
-3.67% 1.254M Freeport McMoran
FCX-N 29.52 -0.14
-0.472% 9.178M iShares S&P/TSX Glb Mining Fd
CMW-T 13.47 -0.06
-0.443% 9,880 iShares S&P/TSX Glb Mining Fd
% HBP S&P/TSX GlblBasMetBull+ETF
HMU-T 5.84 -0.15
-2.504% 909 HBP S&P/TSX GlblBasMetBear+ETF
HMD-T 7.44 0.05
0.677% 3,900 BMO S&P/TSX Base Metals E.T.F.
ZMT-T 11.01 -0.01
-0.091% 942 SPDR Metals Mining E.T.F.
XME-N 35.91 0.13
0.363% 1.133M Global X Copper Miners ETF
COPX-N 9.7 -0.195
-1.973% 52,384 First Trust ISE Global Copper
CU-Q 22.679 -0.291