Gold: GDXJ’s dramatic restructuring is a shot across the bow has been published exclusively on Seeking Alpha on Jul. 21, 2017. 

INTRODUCTORY WORDS

A little aside on Gold this time. The decision by New York-based VanEck to restructure the VanEck Junior Gold Miners ETF (GDXJ) in April this year as a consequence of large inflows has been described by TD Securities specialist Peter Haynes as “the single greatest wealth destruction event in index history”.

The rebalancing was unprecedented and had widespread ramifications for the share price of gold miners. It is also estimated to have cost VanEck hundreds of millions of dollars in lost value. The ETF was inflated to a point where it was bumping up against 20 per cent ownership levels in many of its stocks, putting it at risk of breaching takeover limits. The ETF got too big relative to the sector it is supposed to track and instead its scale could change the direction of the market through rebalances, thus forcing a rewriting of the rules related to miners’ inclusion. It wasn’t long before theories about a potential breakdown of the ETF model started to emerge. One couldn’t help but notice a bit of “schadenfreude” in the industry and among traditional fund managers after VanEck’s woes.

The problem however is not so common, after all GDXJ is targeting a relatively niche area within the commodities sector. It is easy to endorse a stand-alone problem. Perhaps we are missing the big picture though. Perhaps the dramatic episode is only a warning sign of deeper trouble. The big picture is becoming discernable. Still blurred, but discernable…

Link to full article on Seeking Alpha