Four Things Einhorn, Soros Are Forgetting About Gold Miners ETF

Highlighting fourth-quarter 13F filings with the Securities and Exchange Commission, it was noted hedge fund legends David Einhorn and George Soros held sizable stakes in the largest gold miners ETF, the Market Vectors Gold Miners ETF GDX.

To be fair to Soros, during the fourth quarter, he pared his stakes in GDX and the Market Vectors Junior Gold Miners ETF GDXJ by 800,000 and 400,000 shares, but he still owned 1.5 million shares of GDX and about two million shares of GDXJ at the end of the quarter.

At the end of the first quarter, Soros held 2.66 million shares of GDX, according to the latest 13F, meaning his stake in the ETF almost doubled. The filing also shows Soros still holds 1.2 million shares of GDXJ and initiated a new options position in that ETF.

As for Einhorn's Greenlight Capital, that hedge fund still owns over 6 million shares of GDX. Either Einhorn and Soros know something about GDX and GDXJ that most of the rest of the world does not or they are forgetting the following.

Average Returns
Or shall we say "disma?" Ninety days ago, GDX was a $40 ETF. It will be lucky to close above $28 this week. Ninety days ago, GDXJ was a $17 ETF. It will be lucky to close above $11 this week. In other words, the average return for the two ETFs in the past three months is a loss of about 33 percent.

Ominous Options Activity
Earlier this month, it was reported that options traders were stepping into the June GDX $27 puts in a big way. Problem is that put buying was not a one-off event. Put buyers have again been targeting GDX in recent days.

Bad At The Top
Three stocks – Goldcorp GG, Barrick Gold ABX and Newmont Mining NEM – combine for over 29 percent of GDX's weight. Goldcorp is down 28.3 percent year-to-date. Barrick has plunged almost 46 percent. Einhorn owns 1.96 million shares of Barrick, by the way. Newmont has tumbled 33 percent.

Dividend Cuts
In April, Newmont slashed its dividend by 17.6 percent. Deutsche Bank said Barrick and Kinross Gold KGC, which accounts for 4.5 percent of GDX's weight, could also be dividend cutters.

"Further, as expectations for near-term operating cash flows fall, we may see gold miners defer or shelve expansion projects in order to preserve free cash flows. Dividend cuts may also be on the horizon, as dividend payouts had been ratcheted up aggressively as gold prices climbed," according to Morningstar.

That does not bode well for long-term holders of GDX, which it can be said Soros and Einhorn have already been.

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