After being beaten down badly over the past few years, the broad mining industry got a fresh lease of life this year with PureFunds ISE Junior Silver ETF (SILJ –ETF report) topping the list of the best performing ETFs of 1Q16. The fund delivered whopping returns of about 71% in the first quarter.
This is especially true against the backdrop of financial market instability that raised the appeal for metals, especially gold and silver. Additionally, the Fed's cautious stance on further rate hikes led to a decline in dollar and rise in the price of the bullions. Modest growth in the U.S. is also supporting the strength in silver price as the bullion is used in a wide range of industrial applications. About 50% of the metal's total demand comes from industrial applications while 30% comes from jewelry/silverware/coins and medal manufacturers.
Acting as leveraged plays on underlying metal prices, metal miners tend to make huge gains compared to the prices in the rising metal market. Let's take a closer look at the fundamentals of SILJ and its performance.
SILJ in Focus
This product provides a true small cap play on the silver mining space by tracking the ISE Junior Silver (Small Cap Miners/Explorers) Index. Holding 24 stocks in its basket, the fund is heavily concentrated on the top three firms that collectively make up for 40.3% of assets while other firms hold no more than 6.1% share. Canadian firms take the lion's share at 82%, while the U.S., Peru and United Kingdom take the reminder. The fund has managed assets worth $9.2 million and trades in a paltry volume of less than 18,000 shares a day. It charges 69 bps in annual fees.
Though almost all the stocks in the fund's portfolio have delivered impressive returns, a few were the real stars gaining over 50%. Below, we have highlighted those five best performing stocks in the ETF with their respective positions in the fund's basket:
Top Performing Stocks of SILJ
First Majestic Silver (AG – Snapshot Report): The stock has been flying higher, having surged about 101% in the first quarter. The company – engaged in the production, development, exploration, and acquisition of mineral properties with a focus on silver projects in Mexico – is expected to deliver earnings growth of 15.5% this year and 74.5% in the next. However, the stock has seen negative earnings estimate revisions over the past 90 days for both years. As a result, it has a Zacks Rank #3 (Hold) with VGM Score of F. First Majestic occupies the top position in the fund's basket with 16.6% of total assets.
Hochschild Mining PLC (HCHDF – Snapshot Report): This stock – engaged in the exploration, mining, processing, and sale of silver and gold deposits in Peru, Argentina, Mexico, and Chile – takes the sixth spot in the fund's portfolio with 5% allocation. It has delivered returns of over 74% and has the potential to move higher in the coming weeks given its top VGM score (V stands for Value, G for Growth and M for Momentum) of A. Though Hochschild has seen no estimate revision over the past 90 days and has a Zacks Rank #3, it is expected to deliver earnings growth of 45.4% in fiscal 2016.
Endeavour Silver Corp. (EXK – Snapshot Report): It gained about 67% in the first quarter with more room for upside as it has a solid Zacks Rank #2 (Buy) with a VGM score of B. Additionally, the stock has seen positive earnings estimate revisions over the past 90 days for this year with no growth. For the next year, the company is expected to deliver earnings growth of 36.4% though there has been no change in earnings estimates. Investors should note that Endeavour Silver – a mid-tier silver mining company focused on the growth of silver production, reserves and resources in Mexico – takes the seventh position in the fund's basket and accounts for 4.8% of total assets.
