Individual Investors
Latest Reddit campaign for Silver may be on the money
Feb 05, 2021
Demand for silver skyrocketed this week, off the
back of the latest campaign from Reddit’s r/wallstreetbets
group. Investors may wonder what’s
beyond the frenzy and whether the Reddit
campaign has unexpected substance to it.
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The Reddit Story
Following a bid to counter short-selling of
GameStop, r/wallstreetbets turned its collective
eyes to silver. With the claim from some
segments within the Reddit group that silver
prices were being held artificially low by bank and
hedge fund manipulation and short-selling,
amateur investors piled in to purchase silver ETFs
and mining companies in a bid to push prices up.
There were record volumes for trades into US
silver ETFs on Monday 2 February 2021 and
prices rose to eight-year highs. While the GameStop campaign may have been
successful in pushing prices up, silver is a different
story for a few reasons.
Firstly, silver is a far larger, more complicated and
more valuable market compared to the much
smaller share pool of GameStop. Silver is used
and purchased for industrial and investment
purposes and only a portion of the world’s silver
reserves is traded on stock exchanges. Effectively,
there are more factors influencing the prices of
silver than simply share trading.
Secondly, there are only limited short positions in
silver, in fact, most banks and investment managers
hold long positions on silver and held a positive
outlook on silver’s prospects prior to the
Reddit rally¹. By contrast, there were concerns
over GameStop’s future before Reddit warriors
pushed prices up to levels that are now
considered vastly inflated compared to the
company’s financial position and prospects.
While the rationale for the silver Reddit rally may
be flawed (and there are questions over the extent
Reddit really caused the rally), investors may have
inadvertently selected an asset with a promising
outlook and potential benefits to a portfolio. It is
up to investors to take the time to assess the
value of silver before selling up when the frenzy
eases.
The drivers of silver and it's outlook in 2021
Silver has a range of uses and more than 50% of
demand is for industrial purposes, such as in cars,
solar panels, medical equipment and electrical
circuits². Annually, over 36 million ounces of silver
is used in motor vehicle production³ and this is
predicted to grow to nearly 90 million ounces by 20254
Silver is also antimicrobial, which makes it
popular in medical use5.
In 2020, silver supply and demand was affected
by COVID-19 with lockdowns dampening industrial
demand, while mining production also fell and
impacted supply. Industrial production is tipped to
ramp up in 2021, supported by government stimulus
packages globally, the rollout of vaccines and
the prospect of economic recovery. In turn,
demand for silver is likely to increase in line with
this.
Further, silver is heavily used in renewable energy
systems, such as solar panels and as part of electronics.
Silver is also likely to benefit from the
refocused efforts on climate change globally, with
a number of major renewable energy projects
announced, such as the NSW government’s $32
billion renewable energy plan6.
Investment demand for silver was also trending
upwards from late 2020, with investors looking for
alternative safe-havens to gold. Silver-backed
exchange-traded products (ETPs) surpassed 1
billion ounces for the first time7. Silver can be
used as a store of value and traditionally offers
positive performance during periods of low interest
rates. With the prospect of continued low
global interest rate and concerns over potential
inflation, investors have shown increased interest
in exposure to this precious metal.
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Three trends for 2021
Jan 25, 2021
Investors may be feeling a cautious sense of optimism as we enter 2021 with global vaccine rollouts. Last year, technology companies and commodities were investment winners, so what will 2021 hold for investment markets?
There are three trends we see influencing ETF investments in 2021: the movement to value, thematic investing and short & leveraged investing.
Download the complete paper here
Movement to value
As news of vaccines hit markets in late 2020, investors started to shift their approach away from a pure growth focus and towards value investments such as banks and industrials.
This trend is likely to continue in 2021 as investors anticipate a return to ‘normal’ and start to view growth stocks, particularly in the technology sector, as overpriced.
The Australian sharemarket is strongly skewed towards financials and resources, including companies typically falling into value investments. Investors could consider tailored Australian exposures such as ETFS S&P/ASX 300 High Yield Plus ETF (ASX Code: ZYAU).
Thematic investing with climate and biotechnology
Investors are increasingly interested in tailored investments accessing the growth themes of the future, as well as being able to invest according to their views and values. ETFs targeting specific themes should continue to be prominent in the coming year and investors are becoming more aware of how to use these as part of their portfolios.
While themes like virtual connectivity will continue to be popular, dynamics in the coming year should mean climate change and biotechnology will be focus points for investors.
Investors considering thematic investing may wish to look at ETF Securities’ Future Present Range of ETFs. Those specifically interested in biotechnology may consider ETFS S&P Biotech ETF (ASX Code: CURE). Alternatively, investors focused on renewable energy may consider battery technology which is a key supporter for the viability of renewable energy. ETFS Battery Tech & Lithium ETF (ASX Code: ACDC) is the only Australian-listed ETF to offer exposure to the global battery technology supply chain.
Short and leveraged investments
Across the volatility of 2020, many self-directed sophisticated investors took a short-term approach to trading and embraced short & leveraged funds. As the world continues to recover from COVID-19 and manages the ongoing tension in global relationships, use of short and leveraged instruments is likely to continue along with continued bouts of volatility.
Some sophisticated investors may anticipate changes in growth sectors like technology as the world opens again and choose short-term investments reflecting their views. For more information on the short & leveraged investments offered by ETF Securities, please click here.
Moving forward in 2021
The last year was unexpected and has shifted global investment behaviour and dynamics. The Australian ETF market will continue to grow and evolve to meet the needs of investors and if the past year is any indication, investors are looking for opportunities and increasingly using ETFs for their market exposure.