When investors think about metals, gold usually comes first. It has been used as a store of wealth for centuries, while silver combines precious-metal appeal with industrial demand.
But the investment case is much broader than gold and silver.
Copper is essential to electricity grids, renewable energy and data centres. Uranium is central to nuclear power. Rare earth elements are used in electronics, defence systems and electric motors. As economies electrify and invest more heavily in energy security, demand for physical materials becomes harder to ignore.
Buying the metal or buying the miner?
The simplest option is direct commodity exposure. With gold, that could mean physical bullion or an exchange-traded product designed to track the gold price. If gold rises, your investment should broadly rise with it.
The drawback is that the metal itself does not produce anything. Gold does not generate earnings, pay dividends or reinvest cash into future growth. Your return depends largely on what somebody else is prepared to pay for it later.
Mining companies are different. They are operating businesses, which means they can generate profits and cash flow, but they also introduce another layer of risk.
The attraction is operational leverage. Imagine a miner producing a commodity for £80 and selling it for £100. Its margin is £20. If the commodity price rises by 10% to £110 while costs remain at £80, the margin increases to £30. The commodity has risen 10%, but the miner’s margin has increased 50%.
That is why miners can sometimes outperform the underlying metal dramatically.
Unfortunately, the same effect works in reverse. Falling commodity prices, higher energy bills, wage inflation, debt or operational problems can quickly damage profitability. A gold miner can therefore fall even while gold itself rises.
Why I prefer mining ETFs
I could try to select individual mining companies, but that would require far more company-specific judgement than I want to make here.
Instead, I prefer ETFs.
A mining ETF spreads my money across a group of companies rather than leaving me dependent on one business or one mine. I still retain the cyclical risks of the sector, but reduce the damage that one company getting things wrong can cause.
That thinking led me to create my Core & Ore Compounder pie on Trading 212.
This is not replacing my global equity portfolio. Globally diversified equities remain the core of my long-term strategy. Core & Ore is a satellite designed to give me additional exposure to areas where I think the long-term demand picture is compelling.
Inside the Core & Ore Compounder
The largest holding is GDIG, the VanEck S&P Global Mining UCITS ETF, at 40%. It provides the broad foundation of the pie and exposure across the global mining sector.
I then allocate 20% to MINE, the iShares Copper Miners UCITS ETF. Copper is my largest deliberate overweight because of the investment required in electricity networks, power generation, data centres and infrastructure.
Another 15% goes into URNM, the Sprott Uranium Miners UCITS ETF, giving me exposure to uranium producers and the long-term case for nuclear power and energy security.
I also allocate 15% to GDX, the VanEck Gold Miners UCITS ETF, for precious-metals exposure. The final 10% sits in WREE, the WisdomTree Strategic Metals and Rare Earths Miners UCITS ETF.
There is deliberate overlap between some of these funds. GDIG already includes companies exposed to gold and copper. Adding GDX and MINE is therefore about tilting the portfolio towards the areas where I want more exposure.
Risk, return and expectations
Trading 212 currently displays a five-year annualised return figure of around 20% for the pie. It is an eye-catching number, but it is not one I would build my expectations around.
Mining is highly cyclical. There will be periods when miners surge ahead of the wider market and periods when they are left behind. Commodity prices can move quickly, and mining shares can amplify those moves in both directions.
That is precisely why I keep this as a satellite.
I am not investing on the assumption that gold, copper or uranium must rise next month or even next year. My thesis is much longer term. Building electricity grids, data centres, defence systems, nuclear power stations and modern infrastructure requires huge quantities of physical material.
The world can talk about electrification and digitisation as much as it likes, but none of it happens without metals.
Someone still has to dig them out of the ground.
Core & Ore gives me diversified exposure to the companies doing exactly that, without allowing a high-volatility theme to dominate the rest of my portfolio. For me, that is exactly what a satellite investment should do.
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