The Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) came to life Wednesday.

Investors now have access to a range of small- to mid-cap gold-mining and -producing companies through an ETF that is the first of its kind.

Van Eck Global knows gold. The company introduced investors to the first gold mutual fund—Van Eck International Investors Gold Fund (INIVX)—back in the late 1960s and then again brought to the table the hugely successful, large-cap-focused Market Vectors Gold Miners ETF (NYSEArca: GDX) in 2006.

Now, the company is trying to provide investors with exposure to a segment of the gold market that is not only riskier and more volatile than its bigger side, but also one, they say, that can produce significant returns and valuable hedge against inflation and currency weakness.

GDXJ will track the Market Vectors Junior Gold Miners Index, a rules-based, modified market-cap-weighted, float-adjusted index comprising securities and depositary receipts of companies with a market cap of at least $150 million—as of Sept. 30, there were 38 securities in the index.

Additionally, each company needs to generate at least 50 percent of its revenues from gold and/or silver mining. And no individual gold producer can exceed 8 percent weighting in the portfolio, or 4.5 percent for a silver miner, Van Eck's Ed Lopez said.

Companies included in the portfolio fall in one of three categories: property developer, operator of a first mine, or emerging midtier producer, which is a company operating two or more mines. The index is weighted some 70 percent toward the small-cap companies.

The index also has a global reach. Canada carried the most weight in the portfolio with a 62.6 percent stake as of Sept. 30, followed by the U.S. with 21.8 percent. Other country allocations are: Australia with 11.2 percent, South Africa with 2.4 percent, China with 1.3 percent and the United Kingdom with 0.7 percent.

High Growth Potential

According to Lopez, these smaller companies have a very high potential for growth, but investors need to understand the risks associated with them. In fact, many components of the index lost money last year, and a third of the companies in the index had negative cash flow on a trailing 12-month basis as of June 30.

Among the inherent risks with this segment of the market are that a developer might actually not find a significant source of gold. Then there are the risks from an operational standpoint: It can be tricky to transition from a developer to an operator of a mine.

"It is challenging to get from a grass-roots company to a producer," Mark Bailey, CEO of Minefinders Corporation, Ltd., said. "It takes a lot of money and a lot of patience."

Bailey's company, for instance, spent 15 years exploring and researching before reaching the point of making the transition to producer.

Access to capital markets is another risk. These smaller companies demand significant investment and they might not always find the capital they need when they need it.

"Gold shares have a high correlation to gold prices," Van Eck's lead investment member Joe Foster said. Through them, investors can get "leverage proxy," as they can outperform gold on the upside and under-perform on the downside.

"There is more volatility in smaller companies, but potential for more gains with this kind of vehicle," Foster said.

GDXJ comes with a net expense ratio of 60 basis points.

You can read IndexUniverse.com's previous story in GDXJ here. You can also find Van Eck's GDXJ Fact Sheet here.