Markets are closed today in observance of President’s Day. Hopefully, a few of our readers, especially the ones dealing with the polar vortex, are taking advantage and getting a few extra hours in bed rather than traverse the cold tundras. Overnight futures are pointing higher but volume is extremely light, not surprising with the U.S. and China both closed. News has been quiet although headlines that COVID cases are down 39% over the past 14 days with deaths down 18% could provide a boost in confidence around the re-opening trade.
Managing the re-opening trade is a key aspect of the U.S. economy. A successful vaccine rollout, herd immunity, low inventory levels, and companies, flush with cheap debt, are ready to increase capital spending can all drive economic ‘escape velocity’ in 2021. However, this uptick in expectations is also leading to a push higher in interest rates and commodity prices. The ability of the Fed and Capitol Hill to find a proper balance between stimulus and policy without aggressively stoking rates and inflation will be one of the most important stories for markets in 2021.
TrackStarIQ Data
| RANK | TOP ETFS – BY ALL FAs (Total Traffic) Last Week | Ticker | TOP ETFS BY FAs w/ AUM>$1B (Total Traffic) Last Week | Ticker | ETF CATEGORIES SPOTLIGHT- PRECIOUS METALS (Total Traffic) Last Week | ETF CATEGORIES SPOTLIGHT- SMALL-CAP BLENDED EQUITIES (Total Traffic) Last Week |
|---|---|---|---|---|---|---|
| 1 | SPDR S&P 500 ETF | SPY | VanEck Vectors Gold Miners ETF | GDX | SLV | MJ |
| 2 | ARK Innovation ETF | ARKK | ETFMG Alternative Harvest ETF | MJ | GLD | POTX |
| 3 | ProShares Ultra VIX Short-Term Futures | UVXY | iShares MSCI Emerging Markets ETF | EEM | PALL | YOLO |
| 4 | iShares Silver Trust | SLV | SPDR S&P 500 ETF | SPY | IAU | THCX |
| 5 | Invesco QQQ | QQQ | Financial Select Sector SPDR Fund | XLF | SLVR | IZRL |
| 6 | VanEck Vectors Gold Miners ETF | GDX | Technology Select Sector SPDR Fund | XLK | PLTM | VBR |
| 7 | ETFMG Alternative Harvest ETF | MJ | Invesco QQQ | QQQ | AAAU | CNBS |
| 8 | ARK Fintech Innovation ETF | ARKF | Invesco DB US Dollar Index Bullish Fund | UUP | IWN | |
| 9 | ARK Web x.0 ETF | ARKW | ProShares Ultra VIX Short-Term Futures | UVXY | AVUV | |
| 10 | ARK Genomic Revolution ETF | ARKG | iShares MSCI South Korea ETF | EWY | ||
| 11 | iShares MSCI Emerging Markets ETF | EEM | SPDR S&P Regional Banking ETF | KRE | ||
| 12 | iShares Russell 2000 ETF | IWM | iShares Silver Trust | SLV | ||
| 13 | SPDR Gold Trust | GLD | Direxion Daily Junior Gold Miners Index Bull 2x Shares | JNUG | ||
| 14 | SPDR Dow Jones Industrial Average ETF | DIA | Consumer Staples Select Sector SPDR Fund | XLP | ||
| 15 | ProShares UltraPro QQQ | TQQQ | Global X Thematic Growth ETF | GXTG | ||
| 16 | iShares 20+ Year Treasury Bond ETF | TLT | Cannabis ETF | THCX | ||
| 17 | Global X Lithium ETF | LIT | iShares 20+ Year Treasury Bond ETF | TLT | ||
| 18 | Global X Cannabis ETF | POTX | iShares TIPS Bond ETF | TIP | ||
| 19 | Technology Select Sector SPDR Fund | XLK | ARK Innovation ETF | ARKK | ||
| 20 | iPath Series B S&P 500 VIX Short-Term Futures ETN | VXX | VanEck Vectors Morningstar Wide Moat ETF | MOAT |
One area your peers have been following closely is Silver. The iShares Silver Trust (SLV) was the fourth-highest searched ETF by All Financial Analysts. SLV is a usual suspect on the list of ETF searches but the ranking matches its previous all-time high for TrackStar searches. The SLV found its way back onto the search list of Financial Advisors with over $1 billion in managed assets after a three-week absence. The attention is reflected in Silver prices as the SLV trades at $25.31, just shy of the 52-week high set on February 1. SLV rallied to $27.98 that day as investors attempted to squeeze the metal in a Hunt Brothers-style investment push. The 52-week range for SLV has been wide, trading between $10.86 to $27.39 reflecting the uncertainty around the global economy.
The SLV gives investors direct exposure to silver by physically holding the metal in vaults in London. The benefits of holding the metal without the expensive costs of storing the metal make it an attractive long-term buy and hold strategy for investors.
The SLV opened for trade in 2006 at $14. SLV would peak with the rest of the commodities supercylce in 2011, hitting $48 in April of that year. Recall the boom was driven by rising demand in emerging markets as well as concern over long-term supply availability. There are some similarities when we look at the demand side as a re-opening is expected to help drive global requests. The concern around the supply side is centered on lower investment by miners over the past few years due to uncertainty around the pandemic. We are seeing the supply concern around metals play out in the semiconductor cycle with tin being the latest commodity to see a multi-year high.
Taking a closer look at SLV, the ETF has an Expense Ratio of 0.50%. It has Net Assets of $17.31 billion with an Average Daily $ Volume of $984 million or approximately 40 million shares, so it offers plenty of liquidity for FAs. Long-term returns do leave a little to be desired as it is down -1.48% (compared to -0.86% for silver spot prices) over the past 10-years but we would point back to the tough comparables against the peak of the commodity supercycle in 2011. Recent returns have been more favorable with the SLV up 48% over the past year (Silver spot is up 50% over that same period).
Investors need to be aware of the tax implications of precious metal ETFs. ETFs backed by physical metals are structured as grantor trusts meaning it just holds the metal, it does not openly buy and sell futures contracts. The IRS considers this investment as a collectible which makes it susceptible to a higher capital gains tax of 31.8% against the standard rate of 23.8% for stocks.
SLV has been the subject of a squeeze by the retail crowd. According to data from SLV, investors plowed $551 million into the SLV last Monday. This was on top of a record $944 million the previous Friday bringing year-to-date inflows to approximately $1.7 billion. That translates to approximately 62 million ounces of silver purchases by the ETF. The ETF trades around 1 billion ounces per year which equates to 6.2% of the annual volume. Silver did hit an eight-year high but it was not able to hold its gains in the short period. If you were curious, silver ETFs bought approximately 281 million ounces of gold in 2020 which helped drive prices 26% higher according to ETF.com. So there is some viability of a squeeze in the metal but retail would need to be extremely coordinated and not lose focus.
Two other ETFs we wanted to highlight were the ETFMG Alternative Harvest ETF (MJ) and the Global X Cannabis ETF (POTX). Cannabis names garnered plenty of attention last week as the retail crowd turned its focus on the group, and perhaps away from silver. Looking at the two names, MJ carries a higher Expense Ratio (+0.75% vs +0.50%). POTX has had a better return year-to-date (189% vs 131%). MJ offers more liquidity with AUM ($2.6 bln vs $309 mln) and Average Daily $ Volume ($60 mln vs 9 mln). MJ has more diversity with 34 holdings vs the 19 holdings in POTX. TLRY and APHA makeup 30% of the MJ ETF with CGC, GWPH, ACB, and GROW all 5%+ weightings. TLRY, APHA represent 31% of the POTX ETF (ACB, CGC, CRON also have weightings over 6%). One item to keep in mind, both pay a dividend with POTX sitting at 3.74%, and MJ’s yield a healthy 3.46%$. For those looking at exposure to the cannabis space, an ETF paying a dividend may offer some income in addition to potential returns.