The Motley Fool

Invest Like Warren Buffet and Load Your RRSP Up with This ETF

Image source: Getty Images.

For those with Registered Retirement Savings Plan (RRSP) room this tax year, this ETF could save your portfolio.

Many high-profile investors much smarter than me think now is the time to hedge. With a market crash potentially on the horizon, many investors are loading up on counter-cyclical investments. Warren Buffett has (uncharacteristically) recently invested in the gold sector, tapping Barrick Gold (TSX:ABX)(NYSE:GOLD) to join the company’s exclusive list of portfolio holdings.

For investors worried about investing in one particular gold miner, here’s an exchange traded fund for you.

A great diversification tool

The VanEck Vectors Gold Miners ETF (TSX:GDX) is perhaps the best ETF for access to high-quality gold miners. This ETF is focused on gold miners and is weighted heavier toward large cap companies such as Barrick. In fact, Barrick makes up more than 10% of this portfolio. This gives investors looking to follow in Buffett’s footsteps with excellent exposure to the highest quality gold miners out there.

Kirkland Lake Gold (TSX:KL)(NYSE:KL), my top pick in the gold sector, is also the seventh largest holding of this fund. Additionally, this ETF provides some silver exposure with various holdings of silver producers as well. This makes this fund a precious metals play more than purely gold, increasing the diversification thesis for this ETF.

Diversification is everything, and putting too many eggs in one basket can be a dangerous proposition. With gold miners, mine-specific risk is real. Mines could have a COVID-19 outbreak or production problem. Similarly, a particular company’s management team could be poor resource allocators. There are a myriad of issues that could plague investors. Therefore, buying a basket of the best quality companies in a given sector is a great way to limit this downside risk.

Risk/reward looks good

The benefit of owning one particular stock is the trading fees may be less than the management expense ratio (MER) of this fund. This ETF has a higher MER (0.52%) than many ETFs due primarily to the higher trading cost of some of the fund’s portfolio components.

There are also risks related to precious metals prices lagging in the quarters to come. Gold is not the hedge it used to be, and gold miners continue to be undervalued due to the markets’ recognition that gold miners are actually notoriously terrible at cost containment and corporate governance.

That said, real yields are still very negative, and are projected to be so for some time. As long as real yields (long bond yields less inflation) remain negative, gold stocks is likely to remain attractive as an asset class. Gold by nature is a natural hedge to inflation.

This asset class is also priced in U.S. dollars. With global stimulus (particularly in the U.S.) increasing the thesis for sustained inflation on the horizon and a lower U.S. dollar, GDX looks really cheap right now.

Here are other companies Warren Buffett would approve of...

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.