Silver Miners ETF (SIL) Comes Flying Out Of The Gate

by on May 13, 2010 | ETFs Mentioned:

The speed with which the ETF industry has expanded has been a hot topic lately, with some analysts anticipating a wave of consolidation at some point this year as issuers pull the plug on products that have failed to gain traction. While there have certainly been a number of ill-conceived product ideas in recent years (see Nine Exchange-Traded Debacles), the overall innovation in the ETF industry continues to be impressive.

While some new entrants to the ETF space have relied on their strong brand name and huge book of existing business (e.g., PIMCO and Charles Schwab), the smaller players have made a name for themselves by developing more niche products backed by unique but compelling investment theses. And while a handful of big players continues to control the majority of ETF assets, several smaller issuers have experienced a great deal of success. IndexIQ now has about $100 million in its IQ Hedge Multi-Strategy Tracker ETF (QAI) and is approaching $200 million in total assets. Emerging Global Advisors has topped the $100 million mark, bolstered by strong demand for “pure play” emerging markets exposure (see a Q&A With Richard Kang).

Global X has also enjoyed some early success, as investors have embraced sector-specific China funds as a way to achieve more targeted exposure to the world’s largest emerging market. Now the New York-based issuer has expanded its product lineup beyond China, introducing the Silver Miners ETF (SIL) and Copper Miners ETF (COPX) last month. The initial response to COPX has been lukewarm, but SIL has seen a tremendous amount of interest. After about a month of trading, SIL’s assets have surged to more than $40 million, and trading volumes have regularly topped 100,000 shares a day:

Most new ETFs take months to accumulate the assets and trading volume that SIL boasts after just a month of trading, indicating that significant interest in silver mining stocks exists among investors.

Super Silver

Although European markets have recovered big chunks of the ground lost during last week’s chaos, uncertainty surrounding the euro zone bailout continues to increase interest in safe haven investments. Much of the attention has focused on gold’s rise to near all-time highs, but silver prices have also been soaring in recent sessions (see this Guide To Gold ETFs).

Many investors are now anticipating a period of prolonged strength in precious metals prices, and a popular way to play such a trend is through stocks of companies engaged in precious metals mining and extraction (see all ETFs in the Commodity Producers Equities ETFdb Category). “With silver prices joining gold in a fresh round of strength, it’s becoming hard to identify a silver investment that is not bound to yield impressive returns for investors through the next phases of this precious metals bull market,” writes Christopher Baker.

Van Eck offers a couple ETFs that target stocks of gold miners (GDX and GDXJ), and there are a handful of diversified metals and mining ETFs available (including EMT, which focuses on emerging markets mining companies). But SIL is the first ETF to exclusively target silver miners. SIL seeks to replicate the performance of the Solactive Global Silver Miners Index, a benchmark that includes about 25 global mining companies. Major holdings include Silver Wheaton Corporation, Pan American Silver Corporation, and Fresnillo PLC (see an x-ray look at SIL’s holdings). From a country perspective, Canada accounts for more than half of assets, with the remainder split between the U.K., Mexico, U.S., and Russia.

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Disclosure: No positions at time of writing.