Introducing Sprott Active Gold & Silver Miners ETF (GBUG)

Sprott’s Steve Schoffstall introduces GBUG, an actively managed ETF that aims to provide long-term capital appreciation by investing in shares of gold- and silver-focused companies^† that are engaged in exploring, developing and mining; or royalty and streaming companies engaged in the financing of gold and silver assets. 

^†A company is a gold- or silver-focused company if it earns at least 50% of its revenue or has at least 50% of its assets engaged in exploring, developing or mining gold or silver.

For the latest standardized performance, please visit the individual website pages: GBUG. Past performance is no guarantee of future results.

Video Transcript

Erin Real: Hello, and welcome to Asset TV. I'm Erin Real, and today, I'm sitting down with Steve Schoffstall, Director of ETF Product Management at Sprott Asset Management. Steve, thank you so much for being here. And I want to jump right in. Sprott recently launched an active ETF focused on active gold and silver miners. This is a new space with lots to talk about. What can you tell us about the fund's investment objectives? 

Steve Schoffstall:  It is an active base strategy, ticker GBUG, or G-bug, as we refer to it. Given that it is active, it is the first of its kind in the space, focused specifically on gold and silver miners—our portfolio team screens for miners expected to outperform over the longer term. We're looking at miners, exploration companies, development, streaming, and royalty companies. They will make up a vast majority of the index as they relate to gold and silver. We also have the ability to invest in other precious metals like platinum and palladium, but that's not expected to be a significant portion of the portfolio.

That's where we rely on our investment team's expertise. Our investment team has over a century of experience in the mining space and is very well-versed in it. They've cultivated deep relationships across the industry. Each year, over 200 management team meetings are conducted. In addition, we have an economic geologist on the team who does up to 30 site visits a year. And with that, they have a number of models that they run. They're looking at things like company financials and debt burdens. But they also do conduct sensitivity analysis. They're looking at how the price of gold or silver could impact the company's bottom line, capital structure, and other metrics. 

Erin Real: Very interesting. Sprott has over four decades of specialized experience; as you mentioned, this team was built out of people who you wouldn't normally expect on an investment team. And it's in the metals and mining investment space. So, how is this experience used to manage GBUG? 

Steve Schoffstall: It comes back to those relationships they've built over time. So those management meetings, really understanding the management structure, the capabilities of management teams. And when they do these site visits, they're not just walking through mines. They're going through a meeting with different levels of management within each individual mine site they visit. And they're not just limiting themselves to U.S. or Canadian mines, even though that's for a lot of the exposures. They go to pretty far-flung areas, like Papua New Guinea, South Africa and other countries. 

Erin Real: Gold and silver have set records over the past year. We're seeing incredible movement there. What are some of the reasons driving these higher prices? 

Steve Schoffstall: It comes down to the fundamentals. When you look at gold, for example, over the last three years, we've seen a lot of central bank buying, which has supported higher gold prices. We've seen that go across 1,000 tons yearly each of the last three years. If you were to go back to 12 prior years, that's more than twice what the annual purchasing was on average over each of those years. So central bank buying has been key.

But when you start looking past where the investment flow is going and start looking at the underlying fundamentals, you see that in the mines that are out there, ore grades are declining somewhat. The miners are investing record amounts and trying to find new quality deposits. That's becoming more and more scarce. That's something that we hear across the commodity space.

What that's doing is if we start looking down the road the next three to five years or even longer than that, we think that we're going to have to see higher gold prices to justify the production that we're seeing coming out of the ground. As far as the silver side, it's also fundamentally driven. It does tend to lag gold somewhat. Usually, gold moves first, and then we get silver, which catches up and usually surpasses gold historically. But from silver's perspective, much of it comes down to what we see in the energy transition, artificial intelligence and technology space. Silver, in particular, has been in supply deficits for the last six years. There is not enough silver coming out of the ground to meet demand, an issue the industry will have to cope with over the long run.

One last difference between silver miners and what we see with gold is that silver mining is usually a byproduct. So, about 72% of silver mines come from companies that mine copper, zinc, lead, or other materials. So, higher silver prices don't necessarily correlate to more silver production because each mine is set up differently. And I think it's that difference in how operation complex these companies are that makes an active strategy of feeling. 

Erin Real: That's interesting. So why might an investor want to add exposure to silver or gold to their portfolio right now? Why now as opposed to another time? 

Steve Schoffstall:  They both function as precious metals. Silver has some duality where it is a precious and industrial metal, but it does have a lot of those precious metal characteristics. And with that, you tend to see both silver and gold outperforming periods of economic uncertainty, falling interest rates, and geopolitical risk. A lot of the things we're seeing now are volatility in the market and inflation. It does add a potential for portfolio protection. We also see some low to moderate correlations relative to other asset classes, whether it's the S&P 500, broader bond market or actually negative correlation to the U.S. dollar. So, as some people refer to it, that degree of protection within the portfolio or insurance policy is appealing to investors. 

Erin Real: How might one go about adding gold to their portfolio? There are a number of ways you can have physical gold; you can have passive funds, and there are active ETFs. So how does one do this? 

Steve Schoffstall: The way we view those is they're very much complementary of each other. We tend to advocate for most investors that physical silver or gold components might be a good way to add some differentiating factors to our portfolio because they act differently than equities. In contrast, equities could potentially get caught up in a broader market selloff. And then it comes down to, on the equity side, active or passive, which is the key question there. We don't have a view one way or another. It comes down to investor interest. Investors comfortable taking on that active manager risk might want to look at something like GBUG that seeks to outperform. And one of the things that we see, particularly in gold miners, given that they're very operationally complex, is a large dispersion in returns. If we look at the last five years, the top performer has outperformed the bottom performer by an average of about 170%. Significant opportunities exist for identifying those undervalued companies, investing in them, and attempting to capture relative value. From the passive side, investors who want to get exposure to the metal space through equities, which tend to provide a degree of leverage, could be a way to go for an investor who doesn't necessarily want to take on that active exposure. 

Interviewer: That makes a lot of sense. Is there anything else you'd like to add on this subject? 

Steve Schoffstall: One thing that sticks out about GBUG is important for investors to know that it is very much at its core. It's a value and contrarian play. The portfolio managers are taking their expertise and looking to find those companies that, over the longer term, are expected to outperform. It doesn't have a short-term bias. They're typically looking at investments to hold for three to five years, though that can change. But they do have a long-term mindset. And that's the crux of GBUG. 

Erin Real: Steve, thank you for your time and insight. And thank you for watching. That was Steve Schoffstall, Director of ETF Product Management at Sprott Asset Management. I'm Erin Real. Thank you for watching Asset TV.