Silver miners have been among the best performing stocks in the market this year. Some of them have risen 20 percent, 50 percent or more given that they were so oversold at the beginning of the year. Now that silver is rising again and it seems to have formed a very solid base around the $19/oz. – $20/oz. range I think now is the time to consider buying silver miners.
While those who have the time to pick individual stocks should do so keep in mind that it is not easy, and that silver mining is a very difficult business. So for most people using an ETF is the way to go. The most popular of these is the Global X Silver Miners ETF (NYSEARCA:SIL), which has had a very strong +32 percent performance year to date.
But I think the better option is one that is flying under the radar, and that is the PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ). This fund focuses on smaller silver mining companies, many of which have outperformed the bigger players.
This fund is up an astounding 54 percent year to date given its holdings in top performers such as Fortuna Silver Mines (NYSE:FSM) and Golden Minerals (AUMN). So long as the price of silver continues to appreciate I expect this fund to appreciate as well, and at a faster pace than the price of silver or the Global X Silver Miners ETF. After all these are smaller companies, and during the bear market investors sold off these shares more aggressively than they sold shares in the larger companies, and so they have more ground to make up.
While I am enthusiastic about this fund you should keep a couple of things in mind. The first is that it holds shares in companies that aren’t yet producing silver such as the Peruvian company Bear Creek Mining. This makes the fund riskier than owning a producing silver mining company or silver itself.
Second, the PureFunds ISE Junior Silver ETF is extremely illiquid. As I have said it flies under the radar, and so it only has about $9 million in assets compared with the Global X Silver Miners ETF which has $265 million in assets. Because the fund has so few assets it might be difficult to exit your position efficiently if you need funds, and you might have to accept less for your shares than they are actually worth. So I would advise against trading this fund. You should only hold it in a long-term account such as a retirement account. Furthermore you need to use limit orders when buying it, and you should be very careful when using stop orders because you might get stopped out due to the fact that a large holder is exiting rather than an actual decline in the value of the underlying assets.
With these points in mind investors who don’t mind volatility and who have long-term investment horizons should consider this fund in lieu of bullion ETFs such as the iShares Silver Trust (SLV) or the aforementioned Global X Silver Miners ETF.
Disclosure: Ben Kramer-Miller is long Golden Minerals.