Steve Schoffstall, Director, ETF Product Management for Sprott Asset Management was recently interviewed by Benzinga.
Sprott is a global leader in precious metal and energy transition investments, providing access for investors around the world. The company says that its in-depth knowledge, experience and relationships separate it from generalist investment firms.
The Sprott Active Gold & Silver Miners ETF is an actively managed ETF that invests in gold and silver-focused companies involved in exploring, developing and mining, or royalty and streaming companies engaged in the financing of gold and silver assets.
Sprott is a global leader in precious metal and energy transition investments, providing access for investors around the world. The company says that its in-depth knowledge, experience and relationships separate it from generalist investment firms.
The Sprott Active Gold & Silver Miners ETF is an actively managed ETF that invests in gold and silver-focused companies involved in exploring, developing and mining, or royalty and streaming companies engaged in the financing of gold and silver assets.
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NewsTranscript
00:00Hey, Ziggers, it's Dan Leach, and I have a wonderful guest for you today.
00:05It's Steve Schaafstahl, the Director of ETF Product Management for Sprott Asset Management USA.
00:10Steve, so great to be with you.
00:12Great to be back, Dan. Thanks for having me.
00:14The pleasure and honor is all mine.
00:15Let's talk about Sprott launching a new Active Gold and Silver Miners ETF.
00:20What can you tell us about the strategy?
00:22Yeah, we're really excited to bring the Sprott Active Gold and Silver Miners ETF to market.
00:27Ticker is GBUG, or as we refer to as GBUG.
00:31It's the only Active ETF that's dedicated to gold and silver mining equities.
00:37The fund's going to mainly invest in mining, exploration, development,
00:41some streaming and royalty companies that are focused on mining gold and silver.
00:46We do have an allocation of up to 20% or so to other precious metals like platinum or palladium,
00:52though we expect that percentage to be relatively muted.
00:55It really is primarily a gold fund, as referenced in its name,
00:59with a pretty sizable allocation of silver as well,
01:02which is currently somewhere around 10% of the portfolio.
01:06Awesome. Let's talk about GBUG.
01:07What should investors know about GBUG's selection process?
01:11Yeah, so this is one of the areas where our expertise as a firm really comes into taking shape into an active strategy.
01:18Our investment team has over a century of experience investing in the miners space.
01:23We actually also have an economic geologist on the team,
01:26which comes in handy as the investment team does up to 30 site visits a year.
01:30So not only are they going to the site and talking to senior management and that C-suite level of management,
01:37they actually talk to hierarchies throughout the organization.
01:40So as they're looking at these sites, they're really getting an understanding,
01:43a 360 degree view of not only a company in general, but also in specific operations.
01:50Given all that experience that they have in the industry,
01:53our investment teams cultivate a very deep relationships.
01:56They do over 200 management team meetings a year.
01:58This really gives them a feel for management structure and management capability.
02:04And so this all feeds back into their view on different stocks.
02:08So they're looking at things like financial metrics, capital needs, management structure and capability.
02:13And then they also have a sensitivity model that they'll run where they'll start looking at
02:17how the changing prices of gold and silver could impact the company, what their costs are, taxes, things of that nature.
02:23So we think it's a really all encompassing type view that the team takes.
02:27And, you know, bringing all their experience to the table is, you know, putting out their strategy,
02:32which we firmly believe in.
02:34Now, it's exciting stuff.
02:35And listen, as you all know, gold obviously has been moving higher in recent years and is near record territory.
02:40What is driving the gold prices, Iverstein?
02:43It really comes down to the fundamentals.
02:45If you start looking at major discoveries,
02:47we're just not really seeing that on a level that would keep production at the high rates that we're seeing.
02:54We do see companies are spending, you know, at record or near record amounts in, you know,
03:00trying to find those new discoveries.
03:02But at the same time, as we're not finding those large quality deposits, we see or grades are declining.
03:09And there's not really enough quality deposits to keep pace with current prices of gold.
03:14So even though we've seen a large run up in the price of gold in the last few years,
03:19to maintain these production levels, it's likely that we'll have to see even higher prices.
03:24And then also, you know, one thing to note on silver, because it is an important part of the strategy,
03:29it benefits from being both a precious metal and an industrial metal.
03:33About 55 percent of the fund is industrial based.
03:36A lot of what we see is coming from solar panel growth.
03:41So over the last 10 years, since 2015, solar solar panel demand for silver is actually increased by about 28 percent per year.
03:50So very significant growth that we see in solar panels now makes up about 16 percent of overall silver demand.
03:57And at the same time, when you think about silver and the fundamentals of silver,
04:01it is a little bit more unique than what you see with gold because it is largely mined as a byproduct metal.
04:07About 72 percent of silver comes because miners are mining something else.
04:11So that makes it much more difficult for miners to really scale up production because silver may not be their main driver of revenue.
04:19So they're focused more on things like copper, zinc or lead.
04:22And now a big question when it comes to gold.
04:24Why many investors want to add exposure to gold miners to their portfolios?
04:29So as a precious metal, it gives a lot of characteristics of diversification that can provide some protection to a portfolio.
04:38When you start looking at correlations to major asset classes like the S&P 500, the broader bond market, you'll see that there's a low to moderate correlation.
04:47When we look at the U.S. dollar, we actually see a negative correlation.
04:50And then speaking of the S&P 500, you know, this strategy really is a value and contrarian play at its core.
04:58When you look at how gold mining equities are priced relative to the S&P 500, they're actually about 40 percent cheaper.
05:05We see they tend to have higher profit margins, about a 50 percent higher yield.
05:10They have less debt on the books and they're less levered.
05:13And I'd say finally, as we start looking at the prices of gold miners and another reason why we think they are undervalued.
05:21If you look at the earnings expectations, not only the growth that we've seen historically, but for the next couple of years,
05:27you just see that the price of the mining equities hasn't really kept up with the growth in earnings.
05:31And we think that's another reason why the gold equities have been underappreciated and may be due for some outperformance going forward.
05:38Definitely a good time to get involved.
05:39Steve, I know that Sprott offers two passive gold miners ETFs.
05:43Why many investors want to consider an active strategy right now?
05:46Yeah, so GBUG is our most recent precious metals ETF.
05:49It is our third gold ETF.
05:50We have SGDM, which focuses on the all cap space, SGDJ, which is our junior miners.
05:56We also have a silver miners ETF that we launched about a month ago, which is a passive strategy based on silver miners.
06:03It's another one that's the only of its kind from a mining of silver ETF strategy.
06:11So the interesting thing about the gold space in general is if you look at allocations of gold, you could there's really three different routes you could go.
06:19You could go physical, you could go passive, you could go active.
06:22We're proponents of having that physical allocation to portfolios.
06:26We think it gives you characteristics that you don't see when trying to diversify with other equities or or even bonds, giving their low correlation to gold.
06:35So by adding having that that base exposure to the physical equity, it also gives the opportunity then for investors to decide if they want to layer on top of that equity exposure.
06:45And usually what you see with gold and silver miners is that over time you expect to see a leverage effect to the underlying commodity.
06:53So by overlaying an equity strategy onto a core physical holding, you have the possibility to increase your return potential.
07:01And then the question really comes down to active or passive.
07:04And from our perspective, we really don't have a view on what's right versus one strategy versus another.
07:10What we like to do is provide investors opportunity.
07:14When you look at an active strategy, the goal there is to outperform the broader market by picking stocks that you would expect to to outperform a market cap based strategy.
07:24For investors that are comfortable taking active manager risk, that could be an attractive option.
07:30There is a significant amount of investors that prefer a passive approach.
07:34They prefer a strategy that might be much more broad and a little less targeted and don't want to take on that active manager risk.
07:40And for those investors, a passive strategy might make sense.
07:43Very, very smart. Steve Schallstall, the Director of ETF Product Management for Sprott Asset Management USA.
07:49That was an absolutely fascinating conversation. Thanks so much for joining me today, Steve.
07:53Happy to be here. Thanks for having me.