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Gold mining stocks around the world have reacted to the unveiling of the revamped NYSE Arca Gold Miners Index, underlying index to the giant Market Vectors Gold Miners ETF (GDX).
With some $6.4 billion in assets under management, the Market Vectors Gold Miners ETF is comfortably the world’s largest gold miner-focused exchange-traded fund (ETF).
The composition of its underlying index therefore matters to gold mining companies – admission to the index can result in a significant share price boost, while omission or removal can result in a stock taking a hit.
Back in August, NYSE Euronext announced that it would be implementing a series of enhancements to the index to ensure it effectively represented the universe of gold mining companies while also reducing portfolio turnover and guaranteeing high liquidity.
The enhancements included expanding the universe to include non-US listed companies; excluding companies with less than $750 million in market capitalisation; including the use of ADRs/GDRs when appropriate; and the introduction of a buffer zone around the $750 million market cap floor to reduce turnover during quarterly rebalances.
The implementation of these enhancements has resulted in a number of constituent additions and removals, as well as notable omissions, the publication of which today has contributed to some dramatic share price swings for the gold miners concerned.
Candidates omitted from the index – firms such as Fresnillo, African Barrick Gold, Polymetal and Hochschild – have generally fallen sharply in trading, while rivals that have gained admission to the index – firms such as Centamin and Newcrest – have risen strongly.
While the share price moves, which range from up 5% for additions to down as much as 14% for omissions, are naturally of concern to investors in these specific stocks, more broadly, the moves are a reminder of the increasing influence of ETFs on the wider market and, critically, the importance of their underlying indices.
Commenting on the index enhancements, Dwijen Gandhi, managing director, Global Index and Exchange-Traded Products at NYSE Euronext, said: “The NYSE Arca Gold Miners Index is the leading benchmark covering the gold mining industry for the community of market participants and exchange-traded product issuers on our exchange. These changes are indicative of the growing demands by clients who want exposure to a global universe of larger-cap gold mining companies.”
Brandon Rakszawski, product manager at Market Vectors ETFs, added: “After reviewing the improved methodology, we are pleased with the planned changes and expect them to be beneficial for investors. By moving to allow for the inclusion of non-US listed companies, we believe the index will better capture the global nature of the gold mining industry. Additionally, by increasing the minimum market cap for inclusion in the index, the overall liquidity of GDX holdings may be improved.”
Although the final index composition has been announced today, the changes won’t become effective until after the close of trading on the NYSE on Friday, September 20, 2013.
The NYSE Arca Gold Miners Index is also the underlying index to the Direxion Daily Gold Miners Bull 3x Shares ETF (NUGT) and Direxion Daily Gold Miners Bear 3x Shares ETF (DUST).