JNUG vs. JDST: Which Gold Mining ETF is Better?

JNUG vs JDST: Which Gold Mining ETF Is Best? Diversification is key to protecting your assets, particularly during periods of market uncertainty.

Many investors create portfolios from stocks, bonds, and cash, balancing the proportion of each to match their risk tolerance and financial objectives. However, some investors prefer to diversify their asset mix even further. They add commodities, real estate, and even cryptocurrency to ensure they are well-positioned to withstand any financial storm.

Gold is a particularly appealing asset for diversification purposes, because it has a reputation (not always accurate) for moving opposite to the market. When stocks go down, many people turn to gold, driving its value up, so it often works as a hedge against market volatility.

There are a variety of ways to invest in gold. The most straightforward is to purchase the actual metal. However, that’s not entirely practical for most investors and bid-ask spreads are often wide just at the time gold is in demand.

Instead, many choose to buy shares of Exchange-Traded Funds (ETFs), such as GLD. Some of these invest in gold directly, either by purchasing gold bullion or dealing in gold futures contracts.

Others invest in companies involved in gold production – for example gold streaming stocks and gold mining stocks. In either case, the fund is designed to track changes in the designated area of the gold marketplace in an effort to return value for shareholders.

Keep in mind that ETFs involved in gold production don’t necessarily reflect movements in gold prices. These ETFs invest in individual gold mining and streaming companies, so returns can be affected by a variety of factors, including regulatory changes, natural disasters, and so on.

Leveraged ETFs Primer

Standard ETFs work much like a mutual fund in that individuals own shares in a large pool of invested capital. Like mutual funds, ETFs offer the advantage of being able to add gold to your portfolio in small amounts, rather than being shut out if you can’t invest thousands in your purchase. Unlike mutual funds, ETFs are traded throughout the day, so you can make changes to your portfolio based on unfolding market conditions.

ETFs don’t tend to be actively managed in the way mutual funds are, so their expense ratios are typically much lower in comparison. That can have a substantial impact on your profits – particularly when you invest long-term.

Leveraged ETFs function the same way standard ETFs do, but they are a bit bolder in their objectives. These ETFs attempt to double or triple the returns of the underlying assets through the purchase of financial derivatives.

When successful, investors stand to earn generous profits, however the opposite is also true: losses are amplified by two or three times, depending on how the fund is structured. Note that Leveraged ETFs have higher expense ratios than their more traditional peers. This occurs because Leveraged ETFs require quite a bit more management.

For investors, the question is this: which ETF is the best option to gain exposure to gold mining?

What is JNUG? What is JDST? 

JNUG and JDST are two sides of the same coin. Both were launched on October 3, 2013, and both are focused on the same underlying index: the MVIS Global Junior Gold Miners Index (MVGDXJTR). MVGDXJTR is a collection of micro, small, and mid-cap businesses that get 50 percent or more of their revenues from goal and/or silver mining.

In addition, some of the companies own property or are in the process of launching mining projects that will lead to at least 50 percent of total revenue from gold mining and/or silver mining. The mix of companies includes both domestic and international ventures.

The Direxion Daily Junior Gold Miners Index Bull 2X Shares (JNUG) aims to achieve 200 percent of MVGDXJTR’s daily returns, while the Direxion Daily Junior Gold Miners Index Bear 2X Shares (JDST) attempts to do the inverse – returns that are (200 percent) of MVGDXJTR’s daily returns. Note that this is a change since April 1, 2020.

Prior to that date, the ETFs attempted to achieve 300 percent and (300 percent) of MVGDXJTR’s returns respectively.

Is JNUG a Good Investment?

The dramatic March 2020 market crashes and subsequent moves by the federal government and its agencies have created perfect conditions for gold to increase in value, according to some analysts. Specifically, in an effort to boost the economy, there is record deficit spending and interest rates are down to zero.

When combined with quantitative easing by the Federal Reserve with no preset limits, all indications are that gold will reach all-time highs. This projection is based on historical data – in particular, data from the 2008 – 2009 financial crisis. Under similar conditions, gold doubled in price by 2011.

With that said, it is critical to remember that Leveraged ETFs are not for everyone. More importantly, no one should consider buying shares as a long-term investment. These types of ETFs are intended for experienced investors, who often hold the shares for a day or less. Remember that both gains and losses are doubled (vs the underlying), so any unexpected event in today’s highly volatile market could quickly wipe out your principal.

JNUG Expense Ratio

The average expense ratio for a traditional ETF is 0.44 percent. Leveraged ETFs require more attention from managers, so they have a higher expense ratio. JNUG comes in at 1.12 percent.

JDST ETF Pros

In general, gold and related investments move somewhat inversely to the market, so when the economy is growing,

JDST offers an opportunity to profit. In essence, this ETF generates returns when gold mining companies lose value. The time to consider buying into JDST is when the stock market is on a steady upward trajectory, and gold is trending downward.

JDST Cons

For the time being, there is no indication that any gold-related investments will lose value, even if the stock market continues its wild fluctuations. That means JDST is unlikely to generate profits for shareholders. Worse, any losses are doubled, so there is a high likelihood of losing your entire investment in a short period.

Hold off on this ETF until the economy has stabilized and there are signs of sustainable long-term growth. Even then, you should not hold these shares for very long. Reevaluate your investment on a daily basis.

JDST Expense Ratio

JDST has a slightly lower expense ratio when compared to JNUG. The total comes in at 1.10 percent.

JNUG vs. JDST: Which Gold Mining ETF is Best?

Given current market conditions, it appears that gold and gold mining are set to rise. That makes JNUG a better choice for possible short-term profits. However, it can’t be emphasized enough that these funds are not intended for long-term investment. Your decision to buy and sell shares should be made on a day-by-day basis.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.