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I own junior gold miners ETF - GDXJ. If one of the mining companies in the ETF gets bought by a bigger miner, what happens to the ETF? Does it go up? Do ETF investors get some kind of cash in terms of a dividend somehow?

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There are a number of ways this can result. In a broad ETF, such as SPY, the S&P 500 spider, the S&P index will have 500 stocks no matter what, so a buyout would simply result in a re-shuffling of the index makeup. No buyout will happen so quickly that there's no time to choose the next stock to join the index.

In your case, if the fund manager (per the terms of the prospectus) wishes to simply reallocate the index to remove the taken-over stock that's probably how he handle it.

Unless of course, the prospectus dictates otherwise. In which case, a cash dividend is a possible alternative.

  • So manager will most likely remove the stock from ETF? What about the gains that the stock made? Usually when company is acquired they are acquired for price that is larger than their current stock price. Hence their stock price jumps. If I own that stock I would get the benefit of that stock bump. Assuming that, what happens when that stock is in ETF and I own that ETF? Am I'm not going to get any benefit from company acquisition? – dev.e.loper Sep 22 '11 at 21:44
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    If it's distributed as a dividend or cap gain distribution, you have the cash represented by the deal, if it's reinvested, you now have an ETF whose value is higher by some amount. – JTP - Apologise to Monica Sep 22 '11 at 21:51

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