iShares Silver Trust – MSCI Global Silver and Metals Miners ETF

One way of gaining exposure to the emerging Bull Market in Gold and Silver is to invest in the ETFs that focus on the precious metals mining companies.

For example, the iShares Silver Trust (CBOE: SLVP) includes Wheaton Precious Metals (NYSE: WPM), First Majestic Silver (NYSE: AG), Coeur Mining (NYSE: CDE), etc.

Investors lacking the skill to successfully pick individual stocks might prefer an ETF like SLVP.

The ETF provides exposure to numerous Silver miners and reduces the risk of picking the "wrong" stock.


ETFs Offer Diversity

Be aware, however, that the diversity of the ETFs is both a blessing and a curse.

The diversity could reduce overall risk, but it also means that some of the ETF investor's capital is going to sit in stocks that aren't the market leaders.

For example, the iShares Silver Miners ETF includes Industrias Penoles (BMV: PE_OLES) as 3.47% of its holding (as of 11/16/2019).

While Industrias Penoles is the world's leading producer of Silver, the company also produces bismuth, lead, zinc, and sodium sulfate.

Think of all those products that aren't Silver as anchors weighing on the share price of Industrias Penoles.

Now don't get me wrong, Industrias Penoles will definitely benefit from the Silver Bull Market.

On a percentage basis, however, the gains in a company like First Majestic Silver (NYSE: AG) will likely exceed the gains in Penoles by a large margin.

First Majestic mines Silver in Mexico – period.


What the Heck is Bismuth?

In contrast, I don't even know what bismuth is so I had to look it up.

 According to Wikipedia bismuth is used for cosmetics, pigments, pharmaceuticals, and as a replacement for lead.

Another potential issue with ETFs and their choice of individual stocks is the percentage of capital that the ETF allocates to each component stock,

For example, the iShares Silver Trust includes Wheaton Precious Metals (WPM) as 22.19% of the ETF's holding (as of 11/16/2019).

While Wheaton is certainly a solid Silver vehicle to invest in, Wheaton is also a royalty / streaming company.

Allocating almost a fourth of the ETF's capital to this particular stock means the ETF has a heavy theme of "Silver royalty companies".

There's nothing wrong with that, but there are ETFs that focus specifically on the royalty companies.

An investor seeking exposure specifically to streaming companies might look at the U.S. Global Go Gold and Precious Metal Miners ETF (CBOE: GOAU) - GOAU includes Wheaton as 9.87% of its holding (as of 11/16/2019).

An investor using ETFs to pursue specific themes might choose GOAU for exposure to streaming companies and then look for other ETFs that focus specifically on the mining companies.

SLVP iShares Silver Trust forces the thematic investor into a mixed-bag of companies, both miners and streamers.


Alternatives to the iShares Silver Trust (SLVP)

The best alternative to SLVP or any of the precious metals ETFs is to invest in the shares of individual mining companies.

Every sector has market leaders and the mining universe is no different.

By investing in the most likely market leaders and outperformers we can realize gains that far exceed the overall sector or any of the ETFs within the sector.

There is a challenge, however, with this approach.

Within the Gold and Silver mining sector there are over 2000 individual mining companies.

Some are currently producing metal (producers) while most are in varying stages of transforming a mineral resource into a producing mine (explorers and developers).

Within the producers there will be a range of performance from market-leading to market-trailing.

Most of the explorers and developers will burn through all of the money they can raise without ever bringing a single ounce of metal to the marketplace. A few of them will strike it big and become 10-baggers or more for their investors.

Investors picking individual precious metals mining stocks need to do these three things:

  • Identify the producing companies that are most likely to outperform the sector
  • Pick the most likely “10-bagger” exploration and development companies
  • Manage risk

All of those objectives are achievable but investors have to perform some due diligence.

A good starting point is to focus on the component lists of the precious metals ETFs like SLVP and GOAU.

All of the ETFs publish their current holdings and these lists of mining stocks provide an excellent source of potential Silver and Gold investments.

So instead of trying to filter through 2000 individual mining stocks go to the website of an ETF like the iShares Silver Trust and begin with the companies they have already selected.

For more guidance see the white paper on mining stocks and the newsletters.