Tag: top holdings

Fed Rate Cuts Fuel Gold’s Rise: How to Play the Rally

Posted on by The INO.com Team

The recent Federal Reserve rate cut of 50 basis points has sparked a surge in gold prices. Gold, which reached a record high of $2,635.29 per ounce on Monday, has risen nearly 29% year-to-date. This surge has significantly boosted the appeal of gold as an attractive asset for investors.

Investors often turn to gold during uncertain times, as it is a safe-haven asset. The inverted yield curve, where short-term bond yields are higher than long-term yields, has added to recession fears, pushing more investors toward gold. In volatile markets, gold offers a way to diversify portfolios, protect against inflation, and hedge against broader market risks.

To play this rally, investors can look at gold ETFs such as SPDR Gold Shares (GLD) and VanEck Gold Miners ETF (GDX), which provide exposure to gold prices and gold mining companies, respectively. Additionally, stocks like Newmont Corporation (NEM) and Franco-Nevada Corporation (FNV) are well-positioned to benefit from gold’s continued rise, making them solid options for those looking to tap into the ongoing gold rush.

ETFs to Buy:

SPDR Gold Shares (GLD)

GLD is a popular exchange-traded fund (ETF) that aims to reflect the performance of the gold bullion price before fees and expenses, offering investors a way to track the value of gold without physically holding it. Managed by World Gold Trust Services, LLC, GLD invests primarily in gold, making it a convenient and efficient vehicle for those seeking exposure to the commodity market. It can be used as a short-term position to hedge against equity market volatility and inflation.

As of September 24, 2024, the fund had assets under management (AUM) of $74.32 billion and an NAV of $243.58. GLD has an expense ratio of 0.40%, which is lower than the category average of 0.48%. Its fund inflows came in at $4 billion over the past three months and $759.19 million over the past year. Also, the ETF has a beta of 0.11, indicating comparative stability than the broader market.

In terms of price performance, the ETF has surged nearly 38% over the past year and more than 28% year-to-date.

VanEck Gold Miners ETF (GDX)

GDX seeks to replicate the performance of the NYSE Arca Gold Miners index before fees and expenses. The non-diversified fund usually invests 80% of its total assets in depositary receipts and common stocks of the gold mining industry, thereby delivering an ‘indirect’ exposure to gold prices.

With $15.95 billion of total net assets, GDX’s top holdings include Newmont Corporation (NEM) with a 15.25% weighting, followed by Agnico Eagle Mines Limited (AEM) at 10.05%, and Barrick Gold Corporation (GOLD) and Wheaton Precious Metals Corp. (WPM), at 8.69% and 6.89%, respectively. It currently has 59 holdings in total.

The fund pays an annual dividend of $0.50, translating to a 1.21% yield at the prevailing price level. Its dividend payouts have grown at an impressive CAGR of 38.1% over the past three years and 36.6% CAGR over the past five years. Also, the fund’s four-year average yield is 1.32%.

Over the past five days, GDX’s fund inflows were $104.35 million and $438.16 million over the past month. In addition, its 0.51% expense ratio compares to the 0.48% category average. The ETF’s NAV was $41.24 as of September 24, 2024. Moreover, it has gained more than 43% over the past year and nearly 34% year-to-date. Also, it has a beta of 0.99.

Stocks to Buy:

Newmont Corporation (NEM)

Newmont is the world’s leading gold mining company and a producer of other precious and industrial metals, including copper, silver, zinc, and lead. NEM has the largest gold reserve base in the metals mining industry, underpinned by its world-class ore bodies in top-tier locations.

NEM’s sales increased 64.1% year-over-year to $4.40 billion for the fiscal second quarter that ended June 30, 2024. Its net cash from operating activities rose 112.5% from the prior-year quarter to $1.39 billion. NEM’s adjusted net income came in at $834 million and $0.72 per share, representing 213.5% and 118.2% year-over-year improvements. Also, its adjusted EBITDA stood at $1.97 billion, up 116% year-over-year.

During the quarter, NEM produced 1.61 million attributable ounces of gold and 477 thousand gold equivalent ounces (GEOs) from copper, silver, lead, and zinc. This growth was largely driven by the production of 1.31 million gold ounces from Newmont’s Tier 1 Portfolio.

Analysts expect NEM’s revenue for the third quarter (ending September 2024) to increase 86.2% year-over-year to $4.64 billion, while its EPS is expected to improve 121.9% from the year-ago value to $0.80 in the same period. In addition, it topped the EPS and revenue estimates in three of the trailing four quarters, which is impressive.

NEM’s stock is already up more than 65% over the past six months and has returned nearly 35% year-to-date.

Franco-Nevada Corporation (FNV)

Headquartered in Toronto, Canada, Franco-Nevada operates as a gold-focused royalty and streaming company with a presence in South America, Central America, Mexico, the United States, Canada, and internationally. Operating through the Mining and Energy segments, it manages its portfolio primarily focusing on precious metals, including gold, silver, and platinum group metals.  

On August 13, the company declared a quarterly dividend of $0.36 per share payable to its shareholders on September 26, 2024. With a four-year average dividend yield of 0.93% and the current dividend of $1.44 translating to a 1.12% yield, the company continues to provide consistent returns to its investors. Also, it has a payout ratio of 42.2%.

During the fiscal second quarter, which ended June 30, 2024, FNV reported total revenues of $260.10 million and a gross profit of $178.10 million. The company achieved an adjusted EBITDA of $221.90 million, with a margin of 85.3%, compared to an adjusted EBITDA margin of 83.5% in the prior-year quarter. FNV’s adjusted net income came in at $144.90 million and $0.75 per share in the same period. Also, its cash and cash equivalents at the end of the period stood at $1.44 billion, up 11.1% year-over-year.

Street expects FNV’s revenue and EPS to reach $1.13 billion and $3.32, respectively, in the current year ending December 31, 2024. For the fiscal year 2025, its revenue is forecasted to register a year-over-year growth of 13.7%, reaching $1.29 billion. Also, its EPS is expected to come in at $3.87, up 16.3% from the prior year.

The company’s strong growth outlook is driven by mine expansions and new mine starts, with expectations of up to nine new mines contributing from 2024 to 2028. FNV also holds significant long-term optionality in gold, copper, and nickel, with exposure to approximately 66,800 square kilometers of mineral-rich territory.

Moreover, FNV’s shares have gained more than 8% over the past three months and nearly 16% year-to-date.

Bottom Line

The yellow metal’s long-term prospects appear bright as the gold market is expected to rise to 6.32 kilotons by 2029, reflecting a CAGR of 7.4%. Thus, one can capitalize on the surge without holding it physically through gold stocks (such as NEM and FNV) or convenient gold ETFs like GLD and GDX.

Small-Cap Stocks on the Rise: The Hidden Gems of the Market

Posted on by The INO.com Team

Last week, U.S. equities had a roller-coaster ride as investors grappled with a sharp selloff in big-tech stocks, which led to a rotation into small-cap and value stocks. This significant shift from large-cap to small-cap stocks has been dubbed the “Great Rotation.”

Just a month ago, small-cap stocks were making headlines for their poor performance compared to their large-cap counterparts. The Russell 2000 Index of small-cap stocks had been stuck in a rut for years. Over the past decade, it has underperformed the S&P 500 by 103% and the Nasdaq 100 by an eye-watering 332%. This ten-year stretch of underperformance was one of the worst for small caps compared to large caps in a century. As we reached the midpoint of 2024, the Russell 2000 was barely positive for the year, while the S&P 500 had posted a 15% gain thanks to the stellar performance of the Magnificent Seven.

However, on July 11, small-cap stocks made a comeback after the June consumer price index (CPI) report indicated a further easing of inflation and raised hopes for a September Fed rate cut. This news sparked a major rotation into small-cap stocks, which benefit from lower interest rates due to their higher borrowing costs.

The Russell 2000 surged by 3.6% when the CPI numbers were released. Political developments over the following days also contributed, increasing market optimism for a more deregulatory environment in 2025, depending on the U.S. presidential election results. Since July 11, small-cap stocks have risen over 7%, while large-cap stocks have declined by 3%.

However, the momentum of this trend may hinge on the July Federal Open Market Committee (FOMC) meeting. Although the Fed is not expected to cut interest rates at this meeting, investors will watch closely for any hints about future rate cuts. Interest rate changes significantly impact different sectors of the economy, and small-cap companies, which rely more on business loans, are particularly sensitive to these shifts.

“People typically believe that when you get rate cuts, that benefits small caps in a couple of ways,” said Thomas Martin, senior portfolio manager at Globalt Investments. Lower interest rates can reduce operating expenses for small companies, boosting their earnings. Additionally, lower rates can stimulate the economy, increasing consumer spending.

If the Fed signals a mild economic slowdown, it could help curb inflation. However, a sharp slowdown might raise recession risks, especially for small-cap companies, which are more exposed to economic downturns than large-caps. Analysts warn that achieving a soft landing will be challenging, as small labor market and economy cracks could lead to more significant issues.

Investors are closely watching these developments, as worsening conditions could adversely affect small-cap stocks. Both the Fed and small-caps have been walking a tightrope toward a soft landing. Achieving this would be ideal, but it's a big "if."

Despite the uncertainty, we believe that an allocation to small-cap equities is still sensible today. After a particularly volatile week, the Russell 2000 has risen by 3.5%, while the S&P 500 dropped by 0.8%. Disappointing earnings from some of the mega-cap names may potentially widen the gap between these two benchmarks.

Moreover, investors have already begun shifting from mega-cap to small-cap stocks in anticipation of future rate cuts by the Federal Reserve, suggesting that small caps could gain even more traction when the Fed eventually lowers rates.

In light of this, let’s discuss the prospects of iShares Russell 2000 ETF (IWM) and iShares Core S&P Small-Cap ETF (IJR). These ETFs offer broad exposure to various dynamic and fast-growing economies and industries.

iShares Russell 2000 ETF (IWM)

Managed by BlackRock, Inc., IWM focuses on the small-cap segment and has assets under management (AUM) of $72.21 billion. The fund’s top holdings include Insmed Incorporated (INSM), which has a 0.43% weighting. FTAI Aviation Ltd. (FTAI) is next at 0.42%, followed by U.S. Dollar and Vaxcyte, Inc. (PCVX) at 0.35% and 0.34%, respectively.

It has a total of 1976 holdings, with its top 10 assets comprising 3.35% of its AUM. IWM’s expense ratio is 0.19%, lower than the category average of 0.59%. Over the past month, its fund inflows were $7.07 billion.

The fund pays an annual dividend of $2.65, translating to a 1.18% yield at the prevailing price level. Its dividend payouts have grown at an 11.6% CAGR over the past three years.

Over the past nine months, IWM has gained 35.1% to close the last trading session at $221.73. It has also gained 10.5% year-to-date. The fund’s NAV was $221.67 as of Jul 29, 2024.

iShares Core S&P Small-Cap ETF (IJR)

With $84.61 billion in AUM, IJR also focuses on small-cap stocks. Its top holdings include U.S. Dollar at 1.61%, ATI Inc. (ATI) at 0.63%, followed by The Ensign Group, Inc. (ENSG) and Mueller Industries, Inc. (MLI), at 0.62% and 0.61%, respectively. The ETF has 605 holdings, with its top 10 assets comprising 6.82% of its AUM.

The fund's expense ratio is 0.06%, lower than the category average of 0.59%. IJR fund inflows were $1.01 billion over the past month and $3.66 billion over the past year.

IJR pays an annual dividend of $1.45, which translates to a 1.23% yield at the current price level. Moreover, the fund’s dividend payouts have increased at CAGRs of 11.3% and 5.4% over the past three and five years, respectively.

IJR has gained 32.2% over the past nine months and 8.1% year-to-date to close the last trading session at $116.99. The fund’s NAV was $116.89 as of July 29, 2024.