The guest commentary below was written by Jesse Felder of The Felder Report.
I get asked all the time where to look to take advantage of the growing opportunities outside of the purview of the passive mania. Well, I can’t find a more obvious sector than the precious metals miners.
It looks to me like they have been left for dead and, for this reason, present a terrific opportunity for true value investors, regardless of the bullish case for gold. And if the gold price takes off, today’s BANG share prices will certainly look like an unbelievable bargain in retrospect.
A few months ago I wrote a post arguing that over the next several years the BANG stocks were very likely to outperform the FANG stocks. To briefly recap, the former, made up of the top four gold miners in the world (Barrick, Agnico Eagle, Newmont and Goldcorp), currently trade at their cheapest valuations in at least two decades.
The latter, made up of perhaps the four most popular stocks in the world (Facebook, Amazon, Netflix and Google), trade just off their highest valuations in history.
And I think there’s a very simple explanation for this. The FANG stocks have broad exposure to ETFs while the BANG stocks have almost none.
In fact, the chart above is skewed by the fact that Newmont Mining is held by 187 ETFs, many of which have almost no assets to speak of. AEM can be found among the holdings of just 6 ETFs, ABX in 12 and GG in 13. In contrast, each of the FANG stocks can be found prominently owned by over 200 ETFs.
Passive ownership statistics like this may prove to be a very valuable long-term sentiment signal. To me, the rise of ETFs is very similar to the rise of investment trusts in the late-1920’s. They are simply created to serve investor greed which is currently centered squarely on the FANG stocks. Conversely, the lack of interest in the BANG stocks is indicative of the fear investors have of the group after a massive bear market. Those wishing to heed the famous words of Warren Buffett should thus be fearful of the FANG stocks and greedy in the BANG stocks.
This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.