SILJ: +33.46%* in 2020
Commodities were one of the only major asset classes that had not participated in the 11-year bull market leading up to 2020. Macro factors like record levels of government stimulus, artificially low yields, market volatility and a supply/demand imbalance are setting the stage for alternatives to equities and fixed income, like precious metals. Silver has historically traded as a higher beta option to its more widely traded cousin, gold.1
Government Stimulus
Federal reserve monetary stimulus hit record numbers in 2020 pushing the Fed balance sheet to roughly $7.4 trillion from about $4.1 trillion at the start of the year.2 This increase in the money supply has created inflationary pressure with real interest rates now in negative territory. As a result, precious metals have an attractive outlook, serving as a hedge against rising prices. Additionally, the Feds lower for longer policy is making alternatives to fixed income, like zero yielding precious metals, more attractive to investors.
New Focus on Clean Tech and Solar Power
The new Biden administration has ushered in an infrastructure spending plan that includes expanding renewable energy production. Renewable sources account for roughly 11% of U.S. power generation3 and President Biden plans to boost renewable power to 100% of total energy by 2050.4 Wind and solar are the fastest growing renewable sources, but contribute just 3.8% of total energy used in the United States. The average solar panel uses about 20 grams of silver or roughly two-thirds of an ounce. The growth in the electric vehicle market is also a key driver for silver demand as EV’s use more silver than the traditional internal combustion engine (ICE). Among other factors, the growth in clean energy should drive demand for silver and is the reason why silver has been coined as the “green metal.”3
Physical Metal vs. Mining Stocks
Owning physical silver directly tracks the spot price of the silver market. Silver mining stocks, however, provides an equity linked exposure to the precious metal and tradability during market hours. Mining stocks also serve as a levered play versus the physical metal due to the fixed cost miners have to extract the metal. As the price of silver moves higher, or lower, the miners’ extraction costs typically do not change. In the event of a silver bull market, price increases of the metal go directly to the miners’ bottom line and makes it more economically viable for the miners to expand production.
Summary
Given the current supply/demand imbalance, artificially low yields, and global monetary stimulus, we expect to see money moving to alternative asset classes like precious metals. The ETFMG Prime Junior Silver Miners ETF (SILJ) provides direct exposure to a basket of small cap silver mining exploration and production companies.
*SILJ’s Performance (as of 12/31/20)
Fund Inception5: 11/28/2011 Expense Ratio: 0.69%
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477). Performance is annualized for periods greater than 1 year.
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Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477), or by visiting www.etfmg.com/SILJ. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. These risks are greater for investments in emerging markets. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual issuer volatility than a diversified fund. Funds that are less diversified across countries or geographic regions are generally riskier than more geographically diversified funds and risks associated with such countries or geographic regions may negatively affect a Fund. Investments in small capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The ETFMG Prime Junior Silver Miners ETF is subject to risks associated with the worldwide price of silver and the costs of extraction and production. Worldwide silver prices may fluctuate substantially over short periods of time, so the Fund’s share price may be more volatile.Several foreign countries have begun a process of privatizing certain entities and industries. Privatized entities may lose money or be renationalized. The Fund invests in some economies that are heavily dependent upon trading with key partners. Any reduction in this trading may cause an adverse impact on the economy in which the Fund invests. The Fund’s return may not match or achieve a high degree of correlation with the return of the Prime Junior Silver Miners & Explorers Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Prime Junior Silver Miners & Explorers Index. IOPV or indicative optimized portfolio value is an estimated intraday fair value of one share of an ETF determined by the last trade price of the fund’s underlying securities.
ETF Managers Group LLC is the investment adviser to the Fund.
The Fund is distributed by ETFMG Financial LLC. ETF Managers Group LLC and ETFMG Financial LLC are wholly owned subsidiaries of Exchange Traded Managers Group LLC (collectively, “ETFMG”). ETFMG is not affiliated with Prime Indexes. Stephen Gardner is a registered representative of ETFMG Financial LLC.
2. Credit and Liquidity Programs and the Balance Sheet
3. U.S. Renewable Energy Factsheet
4. The Biden Plan for a Clean Energy Revolution and Environmental Justice
5. The Fund’s benchmark before 8/1/17 was the ISE Junior Silver (Small Cap Miners/Explorers) Index. On 8/1/17, the Fund’s benchmark became the Prime Junior Silver Miners & Explorers Index.
