Energy’s Silver Lining: A Precious Metal Powering the Future

within uh artificial intelligence computer chips we see uh significant uses of silver uh because it is highly conductible so all of these areas are high growth areas and they all point to uh the overall changing landscape welcome to shifting energy I'm Thalia Hayden with ETF guide we are so glad to have you with us today we're diving into Sprout's new ETF the Sprat silver Miners and physical silver ETF ticker slvr so joining us now Steve Schall with Sprat Asset Management hi Steve welcome back great to see you as always great to be back thanks for having me again so Steve the Sprat silver Miners and physical silver ETF ticker slvr draws on Sprout's long Legacy in Precious Metals but silver is widely used in many applications and is critical to the energy sector what role would you say silver plays in the shifting energy landscape yeah that's a great question the uh shifting energy sector really Bo s down to uh the need for more electricity and that electricity coming from Diversified energy sources and so when we look at the the growth in electricity demand it really comes from three main areas uh the first being if we look at developing countries as they start to urbanize and industrialize their surging electricity demand to to keep up with that growth uh in more developed countries we see things like technological advances as it relates to artificial intelligence data centers electrification uh and uh a growing a growing use of um supply chain reshoring uh something that's become a priority in recent years uh and finally overarching everything is the global transition to cleaner energy so this is the move on a global scale to really look at our energy sources uh and look for more renewable sources so all told if we look at the energy demand and and what's expected to happen out through 2050 uh estimates by the International Energy agency say that we could expect about 170% increase in electricity demand relative to to 2023 um so the way that silver ties into that it has a number of uses uh as it relates not only to electricity but also clean energy uh the first would be in solar panels and the photovoltaic uh solar cells that are used uh it's also used in control rods and nuclear energy so it makes up about 80% of the material in the control rods uh and then within uh artificial intelligence computer chips we see uh significant uses of silver uh because it is highly conductible so all of these areas are high growth areas and they all point to uh the overall changing landscape all right got it well there's another play on Silver of course I'm talking about the monetary aspect and its relationship to Gold so can you tell us more about where silver fits into monetary considerations yeah I think that's what most people are familiar with is silver as a precious metal uh right there next to gold and and platinum and plaum to a certain extent um it still does uh keep a lot of those traits even though we're starting to see its industrial uses increase um typically when we look at um what when precious metals do well is typically environments where you have things like currency debasement inflation geopolitical risks uh lowering uh falling interest rates uh sometimes you see it through e periods of economic uh recovery so those are a lot of the things that we see going on in a Global Perspective now um as it relates to Falling interest rates uh if you look at the Federal Reserve and it its dual mandate to keep stable inflation and inflation and maximum employment um it it's reasonable to expect that we could see some further Cuts in the interest rates going forward which which could uh bode well for um precious metals including silver uh if we were to look back at the last six precious metals bull markets going back to the inflation area of the 1970s um you would see that silver tended to do very well relative to gold on average it outperforms by about two to one so for um you know pretty significant outperformance that we see from Silver from that perspective uh of those six uh precious medals bull marks that we've seen actually five have occurred this Century with the most recent being in the one that we're believe to be in one now uh starting in 2023 that's largely as it relates to the geopolitical concerns and and decreasing uh interest rates that we see on a global scale um when you look at the price of silver and how it's reacted through these bull markets if we were to go back at the turn of the century you would see silver somewhere around $5 per ounce uh it's increased at an annualized rate of about 7% to where we're currently up around $31 per ounce uh as of the time of recording this so um what what we see in the the precious metal space you know I mentioned about the two times outperformance relative to Gold but in the the current uh bull market that we see with precious metals Silver's actually underperforming gold uh on a relative basis so while while it's still up 1.4 times uh to Gold it's underperforming relative to its historical pattern um another widely followed aspect of precious metals investing is the gold to Silver ratio and this is basically uh a way for investors to know it how many times gold is trading to Silver uh typically if we go back 35 years we see that ratio running at about 70 uh where we sit today it's it's uh closer to 90 uh so when you look at that and you look at the relative performance of Silver versus gold in this current bull market it leads us to believe that there is um some additional room for silver to kind of catch up and uh get closer to this historical averages and and so those um uh higher silver prices are something that we foresee going not only over the this bull cycle but uh going many many years into the future as we start to unpack the industrial uses of silver ah okay now Steve can you tell us how slvr is different from other funds that invest in silver Miners and would you say all silver mining companies are the same uh I think the short answer to your second question is no not all silver mining companies are the same and and we'll talk through that um one of the things that we do at sprad is we take great pride in our product development effort uh we have a deep expertise as it relates to to metals and and uh mining uh that goes back several decades uh with a specific F focus on precious metals and critical materials um so when we look to bring a new ETF to Market we have a couple things that we look for uh the first would be we want to find something that aligns with our expertise so that's that's that's the first stop of what we look for uh second we also want to look for those trends that we think are long-term in nature so not looking for the hot uh investment cycle or the hot theme at this moment and finally we we do a scan of the investment landscape and we look at based on the current available offerings out there is there a way that we think that we can improve investor outcomes so it's through that lens that uh we worked with NASDAQ to Cod co-develop the index that is tracked by slvr uh the Sprat physical uh the sprot silver Miners and physical silver ETF um so our our ETF launched here in January but we're really excited about it I'd say one common theme that we have amongst our ETF strategies is that we we take a a pure play approach uh and that provides investors with a focused exposure um so what that looks like in the case of slvr is we our focus is to provide exposure to Pure PL companies to companies that have at least 50% of their revenue or assets tied to things like the mining the production exploration development of silver uh and we also have a physical component a physical silver component which makes up about 17 a half% of the index at every semiannual index rebalance um we do have for liquidity purposes we do have a screen where we have a 25 to 50% Revenue screen though that only makes up about 15% of the index and we keep that at a minimal level just to provide additional liquidity so to understand uh why Pure Play is so important there's a few things that we have to realize about the silver market it is different than what we might see with you know copper or gold markets uh the first is that 72% of the silver that's mined is actually mined as a byproduct of other metals so if you were to look at lead and zinc for example um miners that are mining those two metal Metals account for about 31% of overall silver production uh the second aspect uh to look at the silver market is when you look at the 10 largest silver producers zero of them are predominantly silver miners meaning they principally mine other metals so it's with that lens that that we we look at our silver offering and what that means for the market uh if we look at comparable ETF strategy so other silver mining ETF strategies uh we find that they tend to have a much lower bar than our Pure Play approach uh often times uh they may screen for companies that have an allocation to silver or they generate some Revenue um for mining of silver uh our Pure Play approach is much higher um and what that results in is a product that has U about twice the exposure to Silver relative to other silver mining ETF strategies and to to take that a little bit further if we look at the overlap so how similar are the portfolios from uh one to the next and their strategies uh the uh slvr uh only has a an overlap that's somewhere in the the range of you know 25 to about 30% or so relative to other ETF strategies meaning that slvr is about 75% different than other offerings out there so that that's a significant um way that demonstrates how the Pure Play approach plays out uh as it relates to the the underlying constituents and I think another another piece is uh if we're looking at the exposure uh of companies that have less than 25% of their revenue tied to mining Sil uh in slvr we don't include those companies uh in our portfolios if you if you look at other uh silver mining ETF strategies you can see that number be as high as 50% and on the low side 28% so very significant exposure uh to companies that aren't necessarily uh very much involved in mining Silver as it relates to the overall revenue of the firm so I guess basically to summarize um you know slvr is providing the greatest allocation to Silver while decreasing and providing the least amount of unintended commodity exposure um so with that you know it's it's our view when we look at uh investors that are trying to get exposure to that silver market we think slvr may be well positioned uh to help them Reach those investment objectives now Steve we've heard silver inventories are declining can you tell us more about how the industrial uses of silver are impacting the supply and demand equation yeah absolutely so uh you know silver as a precious metal is one of the oldest forms of currency um but we are seeing an increase in it used from an industrial standpoint uh as of 2023 which is when the most recent data is available about 55% of all silver was used for industrial purposes um it's also second uh the second most widely used commodity behind only oil uh with about 10,000 uses for silver uh we see that uh in things like um uh the medical field where there's antimicrobial and antibiotic um and antibacterial uses for silver uh it is the most conductive um elent on Earth so we do see it used a lot in electronics and we talked about its uses and things like AI computer chips and solar panels and and nuclear energy but uh overall we've seen a pretty steady growth in industrial uses for silver uh industrial uses grew by about 11% 2023 once uh last year's data becomes available we expect to see a growth rate of somewhere in the neighborhood of 8 to 9% uh so pretty uh steady growth that we've seen there uh when we start looking at solar panels that's really the aspect of um the industrial demand that we we see really pushing growth forward uh so in 2015 if you were to look back at how much uh silver demand actually came from solar panels is about 6% uh where we sit today that's actually increased to about 16% of overall industrial demand uh there's two main uses reasons for that one is just the growth in the acceptance and the usage of solar panels and the second is uh the technology is at a point now where it's starting to evolve uh we have the topcom uh topc solar panels that are solar cells that are starting to be rolled out we expect them to become the predominant solar cell moving forward and we expect the 2024 data to show that uh last year was actually a Tipping Point in that uh the reason why that is important is because this new um uh solar cell technology uses 50% more silver uh than what we've seen with with past Technologies so not only are we using more solar the solar that we are using requires more silver uh because of Technology an MS um and then if we look at the supply of silver uh so that's the demand side if we take a look at Supply uh we see supplies remain relatively stagnant it's dropped actually about 3% since 2015 so we don't have a lot of new silver being mined coming onto the market and because most of that silver that 72% being mined as a byproduct uh that we mentioned earlier uh that's really what holds back Supply if you're a miner and you're predominantly mining uh things like copper or lead or zinc you're not going to to change your operations based on the price of silver because that's not a primary driver of of the uh economics of each individual mine um so what we're seeing is that those Pure Play miners the ones that are focused on predominantly uh mining Silver are the ones that may be well positioned to benefit from not only increasing their supply but taking advantage of higher prices and we see Sprat continuing to prepare investors and advisers for the critical materials Mega Trend by offering a full Suite of critical materials ETFs why should investors consider adding exposure to Silver Miners and to their critical materials exposure yeah so it really comes down to the the Solar Usage that we see from from uh silver and how important it is to the solar industry and um if you're familiar with our lineup we do have a large suite of critical materials ETF and our Flagship fund the the Sprat critical materials ETF uh which we launched about two years ago ticker setm actually has about an 8 to 9% allocation to Silver so this is is something that um you know is very much needed in the generation of cleaner energy and and many view it as a critical material so that's that's why we we um you know look at it also not only for precious metals uses uh but also for the critical materials purposes and and we find that uh with funds like slvr that investors really appreciate the opportunity uh to get targeted exposure to just a single commodity um and and so when we're talking about um what makes you know slvr different from other uh silver mining ETF strategies that Pure Play nature really sticks out and and to to kind of walk through a little bit how what that can mean to a portfolio um if you look at Pure Play silver miners again that 50% Revenue test uh their average sustaining cost uh to mine silver is about $17.18 an ounce so with silver prices currently trading around $31 an ounce uh there's a fair degree of profitability within each one of those uh uh within that that group of P Pure Play miners um and given the demand uh dynamics that we see playing out and and when we start looking at things like currency debasement and inflation inflation and geopolitical risks uh those are all things that are lining up We Believe to a market that um may be pointing toward a period of longer term growth in the silver market and then from an investor standpoint looking at what that might mean for a portfolio so you have the growth aspect that is based on supply and demand characteristics and the profitability of the underlying miners but on the other side you can also have some diversification benefits that is afforded through the precious metal side if you look at um uh silver miners as it relates to uh the S&P 500 for example you'll see that the correlation between those two is about 047 uh meaning it's a moderate degree of correlation if you look at the overall broader bond market you see that correlation actually dips down below uh 04 which starts getting a little lower and there there is actually an inverse correlation uh to the US dollar so it does provide um some divers ification benefits from the monetary aspect with the growth aspects that we see from the critical material space well you've certainly given us a lot to think about thank you so much for your timely Insight Steve it's great to be here thanks and that'll do it for today's episode of Shifting energy if you enjoyed the show please let us know in the comments section below by hitting that like button and to learn more about the investment strategies and ETFs we've discussed on today's program be sure to visit Sprout etf.com I'm Thalia Hayden with ETF F guide thanks for watching and we'll see you next time