Gold and silver are both trending higher, increasing the appeal of adding both metals to diversify a portfolio. Mining stocks pose an alternative option. But investors may want to exercise due diligence and take an active approach with an actively managed fund.
With market momentum behind the prices of gold and silver, mining stocks still have yet to catch on to the trend. That performance lag is inherent in gold/silver mining performance, but it creates an opportunity.
“Gold and silver mining stocks have historically been correlated to bullion, but in recent years, they’ve lagged the price of the physical metals,” said John Hathaway, CFA, managing partner, Sprott, and senior portfolio manager, Sprott Asset Management USA, Inc. “Gold and silver mining stocks could offer significant catch-up potential.”
The yellow metal has been on the move thanks to its appeal as a store of value in times of market uncertainty like now. That solidifies its status as a safe haven asset. When it comes to silver, the commodity can carry its own nuances. This is especially the case given that silver combines traits of precious metals as well as industrial metals. The case for the latter is strong. That’s due to silver’s electrical conductivity properties. And that makes it an ideal component in various electrical-powered applications.
“55% of annual demand [for silver]comes from industry or tech, compared to less than 10% for gold,” Adrian Ash, director of research at BullionVault, tells MoneyWeek. “Look around you; if something’s got an on/off switch, it most likely contains silver.”
An Active Approach to Miners
When looking for individual stocks to attain mining exposure in gold, silver or both, investors have myriad opportunities. ETFs allows for broad-based exposure. But there’s another level of market flexibility available via active funds.
That active component allows investors to remain flexible in changing markets, especially when it comes to commodities like gold and silver. The mining industry also has its own nuances to consider. As such, an active fund that warrants consideration is the Sprott Active Gold & Silver Miners ETF (GBUG).
Portfolio managers of GBUG can adjust the holdings of the fund based on current market conditions. That allows for pliability in the precious metals space. GBUG contains holdings of companies engaged in, among others, mining, developing, exploring, and financing operations in relation to gold and silver.
When seeking opportunities, the portfolio managers of GBUG look for companies exhibiting strong fundamentals. They also look for those with strong growth potential. Additionally, the fund scours for opportunities where companies have fallen out of favor, thereby showing signs of value relative to their potential upside. Other qualitative factors are taken into consideration, such as good management structures, competitive positions, and strong strategies, among others.
For added diversification, GBUG also looks outside of the U.S. for opportunities. This includes companies domiciled in Brazil, Canada, Mexico, Australia, New Zealand, South Africa, the UK, and emerging markets.
Mining Is Operationally Complex
“Given the operational complexities of mining, investors may benefit from an active ETF strategy focused on long-term business fundamentals and growth potential,” added Whitney George, Sprott CEO. “The Fund’s investment team is experienced. The team has more than 100 years of collective experience in metals and mining, and it conducts more than 200 management meetings annually, along with periodic site visits to mining operations around the globe.”
For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Channel.
An investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Prospectus, which contains this and other information, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing, which can also be found by clicking one of the links below.
Past performance is no guarantee of future results. One cannot invest directly in an index. Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance.
Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi.
Exchange Traded Funds (ETFs): SETM, SLVR, LITP, URNM, URNJ, COPP, COPJ, NIKL, SGDM and SGDJ
Physical Bullion Funds: PHYS, PSLV, CEF, and SPPP.
