If you read me you know I love silver. I believe in the salvation of silver. It's as important to me as gold, but for different reasons. I buy with both fists and don't look back. I diligently stack choice silver coins and maintain a portfolio of what I consider the correct silver explorers and small cap miners, those with greatest upside potential. I don't exclude gold. But the lion's share of my yellow metal exposure sits in shares of junior miners and explorers.
This article does not intend to further the argument for silver, or gold for that matter. That's been greatly opined in my articles "The Salvation Of Silver And Gold" and "Is Silver Good As Gold" and is likely to be expanded upon again in the future. But I will reiterate I'm not a fan of so called "physicals" ETFs the likes of GLD or SLV. In my opinion if you want to invest in physical bullion you are wise to hold your assets in a safe place, not in paper contracts - allocated or not - but in your very possession. And we'll leave how you define "safe place to posses" as an individual preference.
But a wise man said, "If you don't hold it, you don't own it." And I concur.
So, that's physicals. You buy them. Hold them. And hope to never use them, except for leverage along the way or to leave as a legacy of wealth.
Why then maintain a portfolio of small cap miners? Easy answer. Maximize profit potential. I'm of the mind there's a good amount of time for maximizing profit. Why small cap miners and explorers? Simple. They offer the greatest upside percentage-gains-potential and they're still dirt-cheap. And the world will soon enough increase demand for what they hold.
Don't make the mistake though of investing on price alone. You have to engage in due diligence to find the correct companies. Though tremendous upside exists in holding-long the correct small cap miners and explorers, there is also significant risk in making the wrong picks.
I'll get to my pure-play in a second, but first please look at the week we just had in silver. A surging spot price closing at $23.25 Friday up from the $19 neighborhood in just over a week - add the elevating prices of the miners and it suggests to me the bottom is in and the time to make a move is now. Corrections are not forever - or, you can't keep a good metal down, as it were.
If you agree with me, but have yet to establish a metals position, don't wait. An opportunity like the one staring us in the face right now may not come around again. Time remaining to buy silver below $30 and $40 an ounce is growing short.
That said, here's why I'm writing: I've become aware of a nifty new investment vehicle that's right up my alley. And if you appreciate the great upside potential of owning the correct junior silver miners and explorers like I do, you'll like this. You can now make a pure play, with total global diversity in the junior silver space, riding one US security.
The PureFunds ISE Junior Silver (Miners/Explorers) ETF, (SILJ).
I see a limited downside risk vehicle here with immense upside potential. SILJ brings silver exploration and mining exposure of globally positioned small cap companies to both the institutional and retail investor. An innovator of ETF concepts, PureFunds strives to provide the market with easy access to in-demand niche sectors through pure-play ETFs.
PureFunds was co-created in 2010 by two sharp young men with a vision, CEO Paul Zimnisky and COO Andrew Chanin. The company is based in Madison, NJ.
The PureFunds ISE Junior Silver ETF is the first pure-play of its kind to hold exclusively silver explorers and junior silver producers in one basket. SILJ currently holds 26 such globally diverse small cap companies including Endeavour Silver (EXK), Fortuna Silver Mines (FSM), Great Panther Limited (GPL), SilverCrest Mines (SVLC) and 22 others, many of which are Canadian with U.S., U.K., and Australian mining companies also represented with properties or operations on five continents. Only a few are available for individual purchase on the NYSE.
A complete list of the stocks in the SILJ basket can be downloaded at PureFunds' website where it describes small cap mining companies as those looking for the next big silver deposit - those that can benefit in a number of ways; by the discovery of new mineral deposits, the production of metal rich mines, or becoming the takeover target of a larger mining company like a Pan American Silver (PAAS), First Majestic Silver (AG) or other, for example.
I spent the day learning what I could about Zimnisky and Chanin, their company and its products, and what I learned, I liked. PureFunds offers a total of three ETFs, each trading on the NYSE Arca. The fore mentioned SILJ, The PureFunds ISE Mining Service ETF (MSXX) and The PureFunds ISE Diamond/Gemstone ETF (GEMS). The second and third are stories for another day. We'll stay focused on silver today.
On the PureFunds website I saw photos of the two men, their partners from the International Securities Exchange and Factor Advisors, LLC ringing the opening bell at the New York Stock Exchange this past June 11 to commemorate the new ETFs - not yet one year old having launched November 29, 2012.
I saw video clips of their Bloomberg TV appearances and listened to podcast interviews where I picked up a good feel for who these guys are, what they believe, what they see, and how they operate. The following, for example, is an excerpt from Andrew Chanin's interview for The Daily Gold Podcast [audio] (click for entire interview)
"It took almost two years to actually get [PureFunds] from concept to market. It's a long runway before take-off. […] We've read hundreds and thousands of different reports on the space and when you look at the industrial case alone for the metal it's an outstanding story, when you add this increasing demand from investing that is taking silver supply out of the market it just builds that story."
"When you look at the technicals and fundamentals - from a fundamentals value perspective, silver just becomes that much more interesting."
As Chanin continued, I discovered something unique about how their prospectus was written:
"We allow no lending of the underlying non cash securities of the fund. […] By not allowing lending of underlying securities […] we're actually removing a counter party risk from the investors [while at the same time we're removing the total amount of shares available to short in these underlying securities] …when these securities are lent out typically people use these borrowed securities to short the actual securities. I've heard from many people on the management side of commodities producers [who] feel there've been short raids on their stocks by actually accumulating assets into these funds that can be shorted again."
Pretty smart I thought.
Buying ETFs limits company risk more than buying individual stocks, as less money is lost if or when something goes wrong. But, some crafty traders, hedge fund managers and other professional money mongers successfully short ETFs regularly using the above-described practice.
So, on a whim I picked up my phone and called PureFunds' contact number. Pleasantly surprised, within a short moment I was speaking with Andrew Chanin, who was happy to hear from me as he had just read "Is Silver Good As Gold" on Seeking Alpha.
The ice was broken!
I wasted no time. Andrew, I chimed, I thought I saw earlier, somewhere, McEwen Mining (MUX) listed in your basket of companies, but now it's gone. What gives?
"Yes, but that is not because we dislike MUX. In fact, I'm a fan of Rob McEwen. But our index attempts to find mining companies with at least 50% of their revenues coming from silver mining or silver reserves. McEwen just mines too much gold," he said with a chuckle.
I understood, and the conversation continued then I said, I recognize a silver bull when I see one, Andrew. Can you speak in unbiased terms as to why we're seeing a significant surge in silver this week?
"Well, the same reasons for bullish fundamentals are still in place. And I think metals were over sold. The prices we were seeing were unsustainable. [Mines getting ready to] stop production. […] Silver output down 10% in Mexico. […] Companies can only operate at a loss for so long."
Andrew Chanin and I spoke for some time that day and I realized we have many similar interests. I also discovered a very bright young man of high integrity who knows where he's going and how he's going to get there. I got to feeling I wanted to brush up against him so some of his mojo might rub off on me. And I came away with the sense that he sees something coming many in general simply do not. In fact, I know he does.
Silver has seen strong trading over the past few sessions, actually outperforming gold, especially in the silver mining space. And silver being historically more volatile than gold means my beloved "correct" silver small caps could really make a move in a good bull-run.
To be fair, compared to Global X Silver Miners ETF (SIL), (down to $15.86 Friday) which holds large and small caps and are not as globally diversified as SILJ with most of their 30 companies positioned in North America - and SIL's competitor, iShares MSCI Global Silver Miners ETF (SLVP) (down to $14.70 Friday) which holds even more of the large caps in a basket of 30, are too, stymied by the same limited global exposure as SIL - I think I've finally found an ETF I feel good about owning.
And I think (strictly my opinion) we are at the very beginning of silver's long awaited breakout. So it's time to be long silver. SILJ, The PureFunds ISE Junior Silver ETF (up to $13.53 Friday) could be a good place to start, or if you're already on your way, a great place for some extra bang.
I squeezed Andrew Chanin for one last nugget. What could possibly come next? After a reluctant pause he responded in a softer, but calculated tone:
"For the first time in a while silver looks like a deep value play. All you need is a supply shortage and that can be a major catalyst."
Thank you, Andrew.