Over the past three years, some 1,200 exchange-traded funds (ETFs) have joined the crowded field of now nearly 3,500 funds on offer. With equity ETFs in strong demand for both core and satellite allocations, finding the right investment opportunities can be challenging.
One fund that stands out in 2024 is the Amplify Junior Silver Miners ETF (SILJ). A recent discussion between Wealth Advisor managing editor Scott Martin and Christian Magoon, CEO of Amplify ETFs, delved into the reasons why SILJ is a compelling option for advisors and investors alike.
In April, while the S&P 500 declined by approximately 4%, silver surged, with SILJ experiencing a double-digit increase of nearly 17%, Magoon notes. This stark contrast in performance underscores the unique positioning of junior silver miners amid current market dynamics.
Magoon attributes this performance disparity to several factors, primarily geopolitical tensions and rising global debt levels. These concerns have driven investors toward precious metals such as gold and silver, which are traditionally seen as safe havens.
Potential conflicts in regions such as Europe, the Middle East, and Asia influence investor interest in gold and silver, he explains. Although both metals serve as stores of value, silver has an additional edge thanks to its slightly more extensive industrial usage. In 2023, silver saw record industrial demand, being integral to products such as smartphones, solar panels, and electric vehicles.
This dual demand—both as a store of value and for industrial purposes—creates a strong tailwind for silver and, by extension, silver mining stocks, particularly junior miners. Silver can function as a hedge and a future-oriented investment. Although gold is predominantly used for jewelry and as a store of value, silver’s industrial applications make it indispensable in a modern, technologically advanced world, Magoon says. As industries evolve toward more efficient energy solutions, silver’s role becomes increasingly crucial.
Both silver and gold stocks offer significant portfolio diversification. Most investors with traditional 60/40 portfolios are likely underexposed to commodities such as gold and silver, Magoon points out. Given current market conditions—rising geopolitical tensions and concerning debt levels worldwide—and silver’s expanding industrial applications, advisors may consider increasing their clients’ exposure to these metals.
One of SILJ’s unique aspects, according to Magoon, is its focus on junior silver mining companies. Launched in 2012, SILJ remains the only junior silver mining ETF in the market. About 58% of its portfolio consists of small-cap stocks, with another 35% in mid-caps.
These companies are responsible for a significant portion of the global silver supply. Magoon highlights the difficulties in creating new mines, owing to stringent environmental regulations and other challenges, which make the existing junior miners even more valuable.
Smaller companies in the SILJ portfolio tend to be more sensitive to silver price movements because they have less diversified businesses, he notes. The price of the commodity is a major input for these companies, and any increase in silver prices often translates directly to the bottom line. This leverage effect means that as silver prices rise, the value of these junior mining stocks can increase disproportionately, offering substantial returns. However, this leverage works both ways, making these stocks more volatile and requiring a nimble investment approach.
Geographic stability is one focus of SILJ’s construction. The top country exposures for SILJ are Canada and the United States, Magoon emphasizes. Both countries provide stable regulatory environments and robust infrastructure, reducing the operational risks associated with mining in less stable regions. This stability is crucial for advisors looking for reliable investment opportunities in the mining sector.
Magoon also explains that silver is often sourced from jurisdictions with better regulatory practices and labor conditions than those where some rare earth metals are sourced. Rare earth metals are essential for future technologies, but they are often associated with social and environmental concerns. Silver, on the other hand, presents a cleaner future-forward alternative, especially in the context of an economy transitioning from fossil fuels to clean energy.
When asked about the continuation of the commodity cycle and whether precious metals have peaked, Magoon is optimistic, citing several factors that support continued demand and price increases for silver. The ongoing transition to clean energy, increasing digitalization, and geopolitical uncertainties all point toward sustained demand for silver. The record demand that silver experienced in 2023 shows no signs of abating.
Silver’s unique combination of uses—as a store of value and in industrial applications—makes it a pivotal component in the global economy. Demand across both these vectors is likely to keep silver prices on an upward trajectory, creating a favorable environment for junior silver mining companies. SILJ, with its diversified portfolio of junior miners, is well positioned to capitalize on this trend.
Of course, advisors are already integrating SILJ into their clients’ portfolios. Many employ it as a tactical allocation, leveraging the fund’s volatility to capitalize on rising silver prices, Magoon says. The ETF’s outperformance of the S&P 500 in April illustrates the potential for significant returns. This tactical approach allows advisors to adjust their allocations based on market conditions, enhancing overall portfolio performance.
Additionally, some investors with existing commodity allocations are supplementing their physical gold and silver holdings with SILJ to gain equity exposure. This approach offers diversification and the potential for higher returns, especially in a rising silver market.
Whatever the deployment, the Amplify Junior Silver Miners ETF (SILJ) may represent a unique and timely investment opportunity for advisors and their clients. Its focus on junior silver mining companies provides leverage to rising silver prices, while its geographic stability and diversified portfolio mitigate some of the inherent risks in the mining sector. Given the current market conditions and the ongoing demand for silver in both industrial and investment contexts, SILJ is a compelling addition to any diversified investment strategy.
For advisors looking to differentiate their clients’ portfolios, SILJ offers a strategic option to capitalize on the unique dynamics of the silver market. As Magoon explains, this ETF allows investors to access a diverse range of silver mining companies without the need to select individual stocks, providing a simplified yet effective way to gain exposure to this critical commodity.
As the market for precious metals continues to evolve, staying informed and adaptable will be key to leveraging the opportunities presented by ETFs such as SILJ.
