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13/06/17

09:18

Post #: 25237326
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Originally posted by patientvulture ↑

Today on TSX in Canada, two of the names I am involved in, EDV and TGZ, both up against a backdrop of weakening gold. We will see how the final few days of this rebalance works out.

My own view on the rebalance is that Van Eck is not stupid. They are perfectly aware of the liquidity constraints with respect to the stocks the are impacted. If they couldn't have executed a strategy that would have provided liquidity, then I don't see why they would have chosen the new rebalance weights to be so large.

There is also a large degree of hyperventilating here. The rebalance news came into the market on April 13th. If we date from 12th April, gold is down 1.5%, GDX is down 7.5%, and GDXJ is down 11.5% (all in US$). Against the background of not particularly strong gold, the fact that GDXJ has underperformed GDX by 4% is hardly "the single greatest wealth destruction event in index history".

True, some of my favourite names have been spanked like RSG, RMS, PRU and TGZ but, in terms of the index, the impact has been pretty minimal. Personally, the more disruption the better. Small investors have no liquidity constraint: it's one of the main advantages we have over institutional investors. So the more index disruption away from fundamentals the better. It allows us to trade at prices no institution can trade at. Nonetheless, I doubt we will see distressed prices on Friday. We've probably seen the bottom in my favoured names already (excluding if gold tanks).

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What's to stop them from reducing their holdings pre rebalance date and buying their own reduction of Rsg shares at the vwap from the months between the rebalance announcement and the entrance date? This wealth destruction that I've read about makes absolutely no sense. Seems like its good for us though. I've been buying everything I can.

Although it could be that if there is wealth destruction, it will be because of the limitations of the fund.

Anyways, Rsg has outperformed while it's sp has underperformed. I think it's time for some justice.

RSG Price at posting: $1.26 Sentiment: Buy Disclosure: Held
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