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Generalists can’t ignore junior miners for very long - CIBC

Kitco News

(Kitco News) - The bullish run in gold and silver means that generalist fund managers can’t ignore the small-cap mining sector any more, according to analysts at Canadian bank CIBC.

In a report released earlier this week the bank said that small-cap mining producers now represent about 21% of the S&P/TSX Small Cap Index; a level that is now high enough to attract attention from the broader marketplace, the analysts said.

“Historically, a weighting of 8% or more in the S&P/TSX has forced domestic generalist funds to increase their weighting to the sector,” the analysts said.

In the current environment CIBC likes six junior miners and one royalty company.

“Given the strength and positive outlook for the underlying commodities, and improving balance sheets, project economics, and free cash flow profiles for several names within our universe, we recommend SSR Mining, Detour Gold, Dundee Precious Metals, B2Gold, Osisko Mining, Equinox Gold, and Osisko Royalties to increase weightings to the sector within the small-cap land,” the analysts said.

While the rally in precious metals has contributed to the increased weighting in the index, the analysts noted that the drop in equity prices is helping to skew the shift. Currently, energy stocks represent about 13% of the Index.

Although small cap precious metals miners playing a more prominent role in the Small Cap Index, CIBC said that fund managers have too reluctant to reweight their portfolios. However, they added that this trend could quickly shift.

“We find it hard to believe that generalist investors have been as aggressive in adjusting their weightings and believe that there are still attractive names to buy in the sector despite the recent run-up,” the analysts said. “With just a few months left in the year, portfolio managers are running out of time to catch up to benchmarks and readjust weightings.”

The analysts said that they see more potential for gains in the mining sector as they expect gold and silver prices to continue to push higher through 2021.

“We continue to see no signs of rate hikes on the horizon over the next several years, and historically have seen gold continue on an upward trajectory beyond the last rate cut,” the analysts said. “It’s not too late to increase weightings to the sector and stock picking remains key to de-risking exposure to this sector.”

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