I’ve been in the mining industry for 20 years and I’ve never seen anything like this,” said Patrick Donnelly, president of First Mining Finance Corp., which the GDXJ owns 15 per cent of. “When the price of gold goes up, all the money’s going into these ETFs, leading to pretty crazy distortions overall.”

Mr. Chiu confirms that a rebalance of this size is a rare event and can leave shareholders scratching their heads due to its sweeping nature.

“When the performance of your fund declines due to a structural change … This change, even with a diverse investment, is affecting all the underlying names in your investment,” said Mr. Chiu.

As for miners, Mr. Chiu warns that the impact on some of the smaller companies in the fund will be significant.

“[They’ll be] less liquid with less people involved with them. The downside could be quite strong,” said Mr. Chiu. “Some of the smallest names like the bottom 10 in the ETF are not very liquid now, therefore when the ETF sells them, there is an opportunity where there could be significant impact on Friday.”

Mr. Donnelly remembers the day the Vancouver-based company was added to the GDXJ on Dec. 16, 2016. While the move was exciting at the time, Mr. Donnelly has remained wary of how things could eventually turn.

“It gave me pause. Something I’ve learned is that, yeah, it’s great to get in but when they push you out, it can be very difficult for a company,” he said. “The good news is that it’ll be a temporary phenomenon.”

Mr. Donnelly added that because First Mining Finance shares are “very liquid,” the impact won’t be felt as much as it will for companies that are less so.

It’s estimated that as part of the rebalancing, GDXJ will sell over 38 million First Mining shares, according to a report by BMO Nesbitt Burns. In mid-march, the company’s shares were trading at around $1 but traded as low at 57 cents after the fund announced the changes....

Meanwhile, on the retail side, First Mining Finance’s Mr. Donnelly sees a silver lining to a drop in stock prices.

“It’s almost like the salmon run is coming, in terms of investors,” Mr. Donnelly said. “It’s an opportunity to get some quality names for a good price.”

https://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/etf-rebalancing-a-bumpy-ride-for-junior-gold-miners/article35311350/