PICK: Not My Pick | Seeking Alpha

Earth’s natural resources have been a source of wealth for centuries, with metals and minerals playing a crucial role in the global economy. The world’s increasing demand for these resources, fueled by the transition to renewable energy and the rise of electric vehicles, presents an intriguing investment opportunity, at least in narrative. The problem is that the story hasn’t quite panned out in terms of performance for an area of the market that seems like a no-brainer – global metals and mining.

The iShares MSCI Global Metals & Mining Producers ETF (BATS:PICK) is an ETF that tracks the investment results of an index composed of global equities of companies primarily engaged in mining, extraction, or production of diversified metals, excluding gold and silver. It offers investors an opportunity to gain exposure to the metals and mining sector without needing to invest in individual companies.

When we look at PICK relative to the S&P 500 ETF (SPY), this just hasn’t wanted to outperform. Unfortunately, the last decade has been dominated by pure US, pure tech, and pure growth. This ETF is global, not tech, and pure value. The fund launched at the exact wrong time for a cycle that only favored a particular part of the marketplace (a dynamic I know all too well).

The fund’s portfolio consists of a diverse selection of mining companies, providing it with a broad exposure to the sector. As of June 30, 2023, the fund held 264 companies, with net assets worth $1,513,144,269. The ETF has an expense ratio of 0.39% per year and offers a 30-Day SEC Yield of 4.52%.

Analyzing PICK’s Holdings

Notably, the three largest companies on PICK’s index are BHP Group Limited, Rio Tinto, and Vale S.A. These companies are key drivers of PICK, particularly due to their engagement in iron ore mining.

The fund’s largest holding is BHP Group LTD, with a weight of 14.37%. This global mining giant operates in various countries, including Australia, China, Japan, India, and South America. BHP mines a range of metals, including copper, silver, zinc, uranium, gold, iron ore, and coal. It is also involved in the mining, smelting, and refining of nickel, a key component in electric vehicle batteries.

Another noteworthy holding is Rio Tinto, the fund’s second-largest holding with a weight of 6.76%. Rio Tinto is a well-established name in the mining industry, with operations in copper, aluminum, iron ore, diamonds, gold, and other precious metals.

Freeport-McMoRan, a leading copper producer, is also part of PICK’s portfolio, with a 5.42% weight. The company’s significant contribution to global copper supply positions it favorably amidst the rising demand for copper in the clean energy and electric vehicle sectors.

Advantages of PICK to its Peers

One advantage of PICK over its peers is its dividend yield which is surprisingly high given the space the fund focuses on. This high dividend yield, coupled with its diversified portfolio, makes PICK an attractive option for income-focused investors.

However, while PICK’s yield is attractive, it’s important to note that this ETF has lagged behind global stock market averages in terms of total return over the past year. This underperformance can be attributed to various macroeconomic factors affecting the metals and mining sector, including global economic weakness and fluctuating commodity prices.

Risks and Considerations

Investing in PICK, like any other investment, comes with its own set of risks. One major risk stems from the cyclical nature of the metals and mining industry. The sector’s performance is closely tied to global economic conditions. A slowdown in global economic growth could lead to a decrease in demand for metals, negatively impacting the prices of metals and the profitability of mining companies.

Geopolitical risks also pose a significant threat. Many of the largest producers of key metals are located in countries that present considerable geopolitical risks, including China and Russia. Political instability or unfavorable policy changes in these countries could disrupt the supply of metals and adversely affect the performance of the fund.

The Final Verdict

While the iShares MSCI Global Metals & Mining Producers ETF offers an interesting way to gain exposure to the global metals and mining sector, its recent performance suggests that it may not be the best choice for investors seeking consistent returns. The fund’s underperformance compared to the broader market, coupled with the inherent risks of the metals and mining sector, make it a potentially risky investment in the short term.

However, for long-term investors with a high risk tolerance and a positive outlook on the metals and mining sector, PICK could present a unique investment opportunity. The global transition to renewable energy and the rise of electric vehicles are likely to drive demand for metals in the coming years, potentially benefiting companies in the metals and mining sector.