Stock markets can still offer excellent investing opportunities despite the increasingly uncertain economic landscape. So as the tax year drew to a close last week, I was seeking last-minute buys for by Self-Invested Personal Pension (SIPP).
More specifically, my plan was to capitalise on gold’s impressive bull run by increasing my existing exposure. Its up 27% over the past year, and is being tipped for further substantial gains.
But instead of buying the metal itself, or an exchange-traded fund (ETF) that tracks bullion prices, I opened a position in a fund that mirrors the performance of gold stocks.
Here’s why I just added the L&G Gold Mining UCITS ETF (LSE:AUCP) to my portfolio.
Big benefits
Investing in gold miners can have significant advantages over simply owning physical metal (or a gold-price-tracking fund).
First of all, they offer leveraged exposure to the gold market, which during periods of strong metal prices can deliver far greater returns.
This is why. If gold prices appreciate more than 5%, a producer’s profits may increase more than this because their costs stay relatively fixed while their turnover rises. This can prompt their share prices to increase even more sharply than the gold price.
A gold stock may also outperform bullion prices during periods of strong operational performance. And unlike physical gold or a gold-tracking fund, mining stocks and mining stock ETFs also often provide dividend income.
The L&G Gold Mining ETF is an accumulation fund, meaning dividends from its underlying holdings are automatically reinvested to achieve further growth.
Strong performance
There are many gold producer ETFs I could have chose from. But I plumped for this Legal & General one because of its market-leading returns:
| Top six performing ETFs | One-year return |
|---|---|
| L&G Gold Mining | 58.7% |
| VanEck Junior Gold Miners | 47.5% |
| iShares Gold Producers | 43.6% |
| Market Access NYSE Arca Gold Bugs | 43% |
| VanEck Gold Miners ETF | 42.8% |
| HANetf AuAg ESG Gold Mining | 40.5% |
Source: justETF
I’m optimistic it can continue outperforming rival funds too, thanks to the way it’s structured. For instance, some 14.3% of the fund is invested in Agnico-Eagle Mines shares, making it the fund’s single largest holding.
The Canadian company is one of my favourite sector players. As Edison analysts explain, Agnico-Eagle “has delivered earnings per share growth approximately 30% greater than gold’s price movement” between 2010 and 2024.
The bottom line
That said, there are risks to owning a gold producer ETF like this. Leveraged exposure means losses can be amplified should gold prices fall. What’s more, purchasing mining stocks directly or indirectly exposes investors to the inherently challenging nature of metals extraction.
But on balance, I believe it could be a highly profitable investment for me. Growing economic and political challenges, allied with a worsening outlook for the US dollar, mean bullion prices look in good shape to keep climbing, I feel.
And with holdings in 34 different companies, the fund allows me to effectively spread risk across the mining sector.
