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The Secret of the HUI

By Matt Badiali, editor, S&A Resource Report
Friday, May 18, 2007

Investors who bought the HUI two years ago have nearly doubled their money.
 
The HUI (pronounced hoo-ey) is the nickname for the AMEX Gold Bugs Index, a basket of 15 gold stocks and the most widely followed gold stock index on the market.
 
Although the HUI is widely followed on Wall Street, there's a secret to this index… one that allows investors to make much more money than they would buying a conventional group of gold stocks.
 
You see, not all the companies in the HUI are created equal. While some of the companies produce only gold, many produce other metals too. In fact, those other metals drove some companies to incredible gains.
 
Of the 15 companies in the HUI, eight produce other metals. Here's how they compare to the pure gold producers:
 
Gold Producers
2-Year Returns
Mixed Producers
2-Year Returns
Iamgold
22%
Newmont
15%
Golden Star
66%
Coeur D'Alene
25%
Meridian Gold
72%
Gold Fields
77%
Randgold Res.
102%
Goldcorp
92%
Harmony Gold
155%
Hecla Mining
110%
Kinross Gold
166%
Freeport MMR
124%
Eldorado Gold
175%
Agnico Eagle
206%
 
Yamana Gold
368%
 
The pure gold plays on our list returned an average of 108% during the past two years.
 
Pretty impressive. But the mixed producers brought in an extra 19% return for an average of 127%. That's not really a surprise, since the prices of base metals such as lead, zinc, and nickel have far outperformed gold recently. While gold is up 60% in the past two years, lead is up 165%… zinc is up 231%… nickel is up 206%.
 
In June 2006, I wrote a special issue for S&A Gold Report subscribers called The S&A Retirement Protection Plan. In it, I covered some of the world's best mining companies, including the world's largest copper company by reserves, Southern Copper (PCU).
 
But Southern Copper doesn't just produce copper. It also mines zinc, silver, and molybdenum. Riding the bull market in base metals, the company's gross profits rose by 40% in 2006. In addition to receiving a 6.6% annual dividend, our shares are up about 106%. Our total return is around 120%.
 
Both Southern Copper and the HUI's large mixed metal gains hold the secret to great returns in mining stocks: diversity.
 
While I love the idea of owning some pure gold plays as a crisis hedge, diversity protects your mining stocks the same way it protects your overall portfolio. So keep an eye out for companies that produce more than one type of metal from their projects.
 
It's one of the best strategies to ensure great returns as we ride today's bull market in metals.
 
Good investing,
 
Matt Badiali




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Market Notes
Oil-service stocks at 52-week highs: Transocean, Diamond Offshore Drilling, and Grant Prideco.
 
Global telecom rally continues... AT&T, Brasil Telecom, Nortel Inversoa, Novatel Wireless, Telecom BRASIL, Telecom Argentina, America Movil, and Telefonos de Mexico reach new highs.
 
Health care keeps climbing… led by drug-distribution giant McKesson.
 
Mortgage company Delta Financial hits all-time high.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%