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Are you a contrarian investor with a long-term investment window? Here is a play that could pay off…

by , 25 August 2014

If you have money to invest and a long-term investment window, where should you put your money?

The stock market has had a marvellous run. This may leave you a bit worried about sinking money in just in case a correction comes along.

So where looks cheap at the moment? There is one area that could turnaround and reward the contrarian investor.

Let's take a closer look at this opportunity…

A hard task for the contrarian investor

Contrarian investors seek out assets that are out of favour. With the stock market still in a strong bull run, out of favour shares are few and far between.

And that means you need to look further afield for opportunities…

Contrarian play: Invest in silver miners

Just a few years ago, silver was trading at more than $45 an ounce. It closed on Friday at $19.42. That’s around 60% lower, Alexander Green in Investment U explains.

But if you looks at companies that mine silver, they’ve had it even tougher.

And that’s where this contrarian play is – on silver miners.

You can buy the iShares MSCI Global Silver Miners exchange traded fund (ETF). It is listed in New York. This ETF tracks the performance of the world’s top silver producers.

It includes holdings in Silver Wheaton, Tahoe Resources and Fortuna Silver.

When is the silver price going to head higher?

As a contrarian investor, when you buy an unloved asset in a bear trend, you just need to be patient.

Instead of buying a silver-backed ETF, you could opt for a silver miners ETF. A silver miners ETF has two distinct advantages over a silver-back ETF:

  • Firstly, you get a leveraged effect on the silver price. For instance, if the price of silver rises 10%, silver miners should benefit from a 20% rise in their share prices. This is because they generally have fixed costs and a rise in the silver price boosts profits.
  • Secondly, you get a yield instead of paying storage costs as you would with a silver-backed ETF. The yield is small, about 1.2%, but there is a lot more upside.

A true contrarian investor looks to the assets that investors love the least. Silver ticks this box.

So there you have it, if you’re a contrarian investor with a long-term investment window, silver miners could prove to be worth the gamble.

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Are you a contrarian investor with a long-term investment window? Here is a play that could pay off…
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