Make Money in Gold and Precious Metals the Easy Way
Dec 4th 2012 7:18PM
Updated Dec 4th 2012 7:24PM
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some gold and precious-metals companies to your portfolio, the PowerShares Global Gold & Precious Metals ETF (NAS: PSAU) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.75 %. That's a bit higher than many ETFs, but also lower than the typical managed stock mutual fund. It yields about 1.6%.
The fund is fairly small, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF doesn't have the best track record, underperforming the world market over the past three years. But it's still a young fund, and its future is more important than its past. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 9%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
Why gold and precious metals?
Gold is not everyone's cup of tea, but some investors like to include some in their portfolios for diversification's sake. Some also favor precious metals, as some of them have more utility.
More than a handful of gold and precious-metals companies had strong performances over the past year. Yamana Gold's (NYS: AUY) CEO is handsomely paid but seems to earn it, as the stock is up 15% over the past year. The company expects a boom in production as some investments pay off in the coming years, and it recently reported record production, up 11% over year-ago levels.
Silver Wheaton (NYS: SLW) , up 11%, is a strong performer with a profitable business model, where it finances other miners in exchange for a cut of their business. It's poised to profit from a rise in silver prices, but some would like to see more of a dividend payout.
Other companies didn't do as well last year but could see their fortunes change in the coming years. New Gold (NYS: NGD) , for example, gained just 1%. Its revenue growth has been solid in recent years, but earnings less so. Meanwhile, its cash has been shrinking, its debt and share count creeping up, and its free cash flow negative. Management remains bullish, though, saying in a recent conference call, "We feel fortunate to have a fully funded organic growth pipeline that can see our production more than double in the next four and half years."
IAMGOLD (NYS: IAG) has been volatile lately, surging and then plunging. It's down 39% over the past year, largely on a disappointing earnings report and reduced projections. It's well positioned to make some smart acquisitions, though, and has already made a promising one, expanding its operations in Canada.
The big picture
Long-term demand for gold isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Silver Wheaton provides a unique play on the future of silver. It has grown sales and net income every year since 2008 and also has increased competitive advantages over its limited peer group. More details about our outlook for Silver Wheaton can be found here in our Motley Fool analyst report.
The article Make Money in Gold and Precious Metals the Easy Way originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Silver Wheaton. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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