ETF Talk: A Silver Lining in a Volatile Commodities Market

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Commodities this year have swung both up and down as central bank intervention around the world has stirred concerns about inflation and driven investors toward precious metals. Gold and silver usually rise in value during uncertain times, especially when rising prices cause investors to look for assets that are most likely to hold their value when equities pull back. Since gold often rises and falls the most sharply, I also like to diversify by investing in silver through an exchange-traded fund called the Global X Silver Miners ETF (SIL).

Silver not only is less volatile than gold but it also has a number of industrial uses in manufacturing that help to maintain the precious metal’s value. Traditionally viewed by seasoned investors as an alternative “safe-haven” investment, silver serves as a potential hedge against inflation and sovereign currency risk. Due to the hefty fixed costs in silver mining, the mining companies enhance their profitability rapidly when the price of the precious metal rises. The mining companies also lose share value fairly quickly when the price of silver falls.

The Global X Silver Miners ETF gives investors access to a broad range of silver mining companies that should benefit from a potential rise in silver prices. Significant barriers to entry in the silver mining industry give existing silver mining companies a first-to-market advantage. For example, the majority of supply increases in 2010 came from existing mining companies that expanded their operations to meet increased demand. In addition, holding a basket of global silver miners through SIL helps reduce single-company risk, contributes geographic diversification to your portfolio and could provide additional income through dividends from the mining companies held by the fund.

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SIL specifically seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Silver Miners Index.  The Solactive Global Silver Miners Index is designed to reflect the performance of the silver mining industry. The fund is comprised of selected companies globally that are engaged in an aspect of the silver mining industry, such as silver mining, refining, or explanation. SIL’s five largest holdings, as of Oct. 9, were: Silver Wheaton Corp., 13.24%; Fresnillo PLC, 12.88%; Industrias Penoles, S.A.B. de C.V.; 11.10%; Pan American Silver Corp., 8.81%; and Hecla Mining Company, 5.96%.

I have recommended SIL profitably in the past, including between Sept. 4 and Oct. 1, when the subscribers to one of my services collected gains of 14.51%. That level of return in less than one month even surprised me.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.

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[youtube_sc url="http://youtu.be/Y4e88wsxwsw"] The global economy is slowing. That’s according to the latest report by the International Monetary Fund (IMF). The IMF cut its global growth forecast for 2012 to 3.3% from 3.5%. It also said that global growth was likely to continue slowing in 2013. Well, I doubt that this news is any revelation to anyone who has watched the goings on in Europe, China and the United States over the past nine months. In fact, coming out with a ratcheted down

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