I’ve recently started dissecting various silver and gold mining ETFs to break down their jurisdictions for investors. Even though many investors use ETFs, most investors have appreciated knowing in what countries their ETFs, such as SLVP are invested. Of course, the holdings inside of ETFs change continually, but taking a snapshot in time can be helpful.
Brief Discussion of the Problem
This may cause some of you to pose the question, “Why is jurisdiction so important? Why now?” From a high level, the answer to that question is the same answer for why you invest in gold and silver in the first place. In times like these, capital preservation becomes a top priority. It becomes a higher priority because uncertainty lurks around every corner due to perceived instability among governments and economies.
When governments are unstable, and the economic system is unstable, then gold becomes the answer to fiat currency problems for individuals and potentially for governments as well. And when governments around the world need gold, they may take drastic measures to get it.
ETFMG Prime Junior Silver Miners ETF (SILJ) – Top 10 Holdings And Their Jurisdictions
#1 – Pan American Silver (PAAS) – 12.73%
Source: Pan American Silver FY2019 Annual Report
Source: First Majestic Silver FY2019 Annual Report
#3 – Hecla Mining (HL) – 10.36%
Source: Hecla Mining FY2019 Annual Report
#4 – Yamana Gold (AUY) – 6.04%
Source: Yamana Gold FY2019 Annual Report
#5 – Silvercorp Metals (SVM) – 4.94%
Source: Silvercorp Metals FY2019 Annual Report
#6 – Hochschild Mining (OTCPK:HCHDF) – 4.71%
Source: Hochschild Mining FY2019 Annual Report
#7 – MAG Silver (MAG) – 4.53%
Source: MAG Silver FY2019 Annual Report
#8 – Harmony Gold (HMY) – 4.43%
Source: Harmony Gold FY2019 Annual Report
#9 – SilverCrest Metals (NYSEMKT:SILV) – 4.10%
Source: SilverCrest Metals FY2019 Annual Report
#10 – SSR Mining (SSRM) – 3.70%
Source: SSR Mining FY2019 Annual Report
SILJ Top 10 Holdings and Their Jurisdictions – 100%
The ETFMG Prime Junior Silver Miners ETF can be an excellent way to diversify one’s silver holdings. I find it interesting that this ETF is labeled as “junior” silver miners, but you find many of the same holdings in the Global X Silver Miners ETF (SIL) or the iShares MSCI Global Silver and Metals Miners ETF. However, each one of these ETFs do have slightly different holdings. Thus it can be good to study each of their jurisdictions and invest accordingly.
Keep in mind that these holdings do and will change quite frequently within the ETF. However, it is likely only the different percentages of each holding will change, while the holdings themselves likely won’t change very much.
Here are some notes from the above analysis as well as from previous analysis.
- At least 24 percent of this ETF’s revenues come from Mexico. If you invest in this ETF, you may want to search for silver exposure with other jurisdictions in your other holdings. Even though Mexico is a good jurisdiction, it’s still good not to have all eggs in one basket. As an example, First Majestic recently ran into tax issues with Mexico. Whether this was a mistake committed by First Majestic, or the Mexican tax authorities grinding an ax with First Majestic remains to be seen. That said, Mexico is the largest silver-producing country in the world which can make finding other jurisdictions challenging.
- The fifth-largest jurisdiction in this ETF is China via Silvercorp Metals at almost 5 percent. With the way China-U.S. relations are at the moment, it is important to be aware of this. It seems like new headlines appear daily for relations worsening between the two nations.
- The SILJ and the SLVP ETFs were more diversified in their top 10 holdings relative to SIL. Its top 10 holdings made up 66 percent of its total holdings while the SIL ETF’s top 10 made up 77 percent of its total holdings. The SLVP ETF’s top 10 holdings made up roughly 66 percent of its total holdings as well. Depending on the holdings themselves, this could be a good thing or a bad thing. More research needs to be done, but I wanted to draw this to investors’ attention.
- As with most gold and silver ETFs, one has to beware of Harmony Gold’s Papa New Guinea and South Africa holdings. Papua New Guinea recently made an interesting move on Barrick Gold’s Porgera mine which they are in the middle of hopefully resolving. Although it’s unlikely anything would happen, South Africa is also a nation that can sometimes be volatile.
- When comparing SILJ to SLVP, it’s evident that SLVP tries to live up to its name by being more “global” in its holdings. In its attempt to be more global, it opens the door to risk from countries that SILJ and SIL do not have.
If a precious metals mining ETF like SILJ is part of your portfolio, then knowing what it holds can allow you to be more selective in your other holdings. Or if owning this ETF knowing 5 percent of your holdings are China makes you not want to own it, then maybe consider owning some of the individual silver mining stocks that are inside the ETF. Clearly, stick with the ones with positive fundamentals, good leadership, and attractive jurisdictions.
To share some of my specific thoughts, I prefer Pan American Silver although it has had an incredible run of late. It would wise to wait for a pullback. I also like MAG Silver for its strong prospects from its Juanicipio joint venture with Fresnillo (OTCPK:FNLPF). I also like Wheaton Precious Metals (WPM) which is a gold and silver streamer. Although Wheaton’s jurisdictions are heavily weighted toward Brazil which is cause for some caution, I like Wheaton better for its revenue product mix and its relative valuation. But I do like Franco-Nevada (NYSE:FNV) better for its jurisdictions.
As silver prices continue to rise, keep in mind that we will start to see some outperformance from the marginal silver producers. One in the list above that gets most of its production from the United States (and Canada) is Hecla Mining. Just as one example, I would expect its stock to perform very well relative to others in this list if silver prices continue on this trajectory.
There’s a lot of different ways to play it, but eliminating jurisdiction risk can be one way to help you sleep better and potentially increase returns as well.
Disclosure: I am/we are long PAAS, MAG, AG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author of this article is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author of this article expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.