It’s hard to believe that silver was trading at only $4 just 11 years ago. And amazingly it was only 7 years ago that silver had hit $10 for the first time in nearly two decades. Now at over $30 and rising, silver is flexing its muscles as one of the best-performing assets of the last decade.
There’s no arguing that silver’s secular bull has been spectacular. Since its 2001 low, silver had soared a staggering 1,094% to its 2011 high. And based on its structural fundamentals, silver’s bull still likely has plenty of room to run in the years to come.
Investors who’ve been accumulating this precious metal over the years (like our newsletter subscribers who first started buying with us when we officially recommended it as a long-term investment back in 2001) have obviously fared quite nicely. But there’s another silver vehicle that in some cases has fared even better. Silver stocks, leveraged plays on the underlying metal, have had quite the bull market of their own.
Though there is no silver-stock index that has a long-enough history to give us a direct comparable to silver over the course of this bull, the next-best comparable is the performance of gold stocks given their tight correlations. And the venerable HUI gold-stock index is probably the most conservative metric (the HUI is comprised of the world’s largest gold stocks, along with a couple of large silver stocks).
Considering their risks, mining stocks should exhibit positive leverage to the metals. And with a bull-to-date gain of 1,664% to its 2011 high, the HUI has indeed easily outperformed its underlying metal (+640%). And I suspect a primary silver-stock index would have gains just as good, if not better, over this time.
Thankfully there’s a product that has come to market recently that does offer investors some semblance of sector-level performance for silver stocks, the Global X Silver Miners ETF (SIL). Global X Funds has been a huge innovator in the ETF realm in recent years, especially when it comes to commodities stocks. Its unique approach gives investors easy access to small commodities sectors and subsectors. And the first-of-its-kind Silver Miners ETF is a godsend to the tiny silver-stock sector.
SIL was conceived in April 2010, and like all ETFs its goal is to closely mirror the performance of an underlying index. This index is the Solactive Global Silver Miners Index, and it is designed to generally reflect the performance of the silver-mining industry. SIL is ultimately comprised of stocks that are actively engaged in some aspect of this industry whether it be mining, refining, or exploration.
I see two major benefits to this ETF, and the first is the overall benefit offered to investors. As with most ETFs, SIL is easy to buy, easy to sell, and it even has a relatively liquid options market. SIL’s basket of silver stocks also greatly reduces individual-company risk. And it even offers geographical diversification, which is a big deal in the mining industry.
SIL also opens up the opportunity for institutional investment. Since most individual silver stocks rank too small and/or illiquid for institutional guidelines, most institutions couldn’t or wouldn’t touch them. With the advent of SIL, many can and hopefully will as this ETF grows in popularity (SIL’s total assets are currently about $366m).
Many folks, especially ETF haters, may look past these obvious investor benefits. But they shouldn’t. Since silver stocks are small by market capitalization, thin in population, tend to be illiquid, and are known to be hyper-volatile, they can be very intimidating to potential investors who aren’t attuned to the industry. I guarantee you that a big chunk of the capital pouring into this ETF wouldn’t have found its way to silver stocks otherwise if it didn’t exist.
The second major benefit of this ETF piggybacks off the first. And that is capital shunting directly into the underlying component mining companies. This may not seem like a big deal, but considering the size of these stocks, any buying is good buying. This increases exposure, liquidity, and ultimately the stock prices in a strong silver environment.
Speaking of strong silver environment, this is exactly what investors rely upon in order for silver stocks to move to the upside. And as most folks who are interested in this sector are likely aware, silver is in the midst of a strong new upleg. Since its late-June low, silver is up an impressive 32% to its high just last week.
This new silver upleg gives us an excellent chance to test the resolve of the SIL ETF. And with a 48% gain since its own low in July not only has SIL kept up with silver, it has indeed provided the positive leverage that is essential to keeping investors interested in these types of stocks.
Returns like this over only about two months are certainly attractive. And this will no doubt draw increased attention to silver stocks. And for many of the first-timers into this realm, the SIL ETF will be their first destination for capital.