Global X Launches Silver, Copper Miner ETFs (SIL, COPX)

by on April 20, 2010 | ETFs Mentioned:

Global X, the New York-based ETF issuer known for its line of sector-specific China ETFs, has launched two new ETFs focusing on stocks of copper and silver miners. The Global X Copper Miners ETF (COPX) and Global X Silver Miners ETF (SIL) began trading on the NYSE Arca on Tuesday, becoming the latest exchange-traded products to offer exposure to natural resource prices through the stocks of commodity-producing companies.

Investors looking to gain exposure to commodity prices generally have three options: 1) physically purchasing and storing the resource (or alternatively investing in a physically-backed ETF), 2) using futures contracts, or 3) buying stocks of companies engaged in the production of the commodity. The third option has become tremendously popular in recent years, as evidenced by the success of the Gold Miners ETF (GDX) and Junior Gold Miners ETF (GDXJ) from Van Eck. GDX and GDXJ have generally traded as leveraged plays on spot gold prices, exhibiting significantly higher volatility than physically-backed gold products like GLD or IAU. The correlation between mining stocks and the underlying commodity isn’t perfect, but is generally very strong (see What Every Investors Should Know About Commodity ETFs).

COPX and SIL are the latest additions to this fast-growing corner of the ETF industry, offering exposure to two unique metals. SIL seeks to replicate the performance of the Solactive Silver Miners Index, a benchmark comprised of companies that are actively engaged in some aspect of the silver mining industry, such as mining, refining, or exploration. The index currently consists of about 25 companies, with Canada, Mexico, and the U.S. receiving the largest country allocations.

Silver is one of the world’s most unique commodities, exhibiting characteristics of both a precious and industrial metal. As an investment asset like gold, silver is seen by many as a safe haven during uncertain economic times. But unlike gold, silver is widely used in industrial applications, found in everything from dental fillings and photography to medicine and clothing. As such, demand is also tied to the overall health of the global economy, and silver usage could see a surge if industrial activity continues to accelerate.

A handful of ETFs currently offer exposure to silver through both physically-backed and futures-based strategies (see a complete list here), but SIL is the first to primarily target stocks of silver miners.

Copper Miners ETFs Go Head To Head

COPX will track the Solactive Global Copper Miners Index, an index that measures the performance of companies primarily engaged in copper mining, refining, and exploration. The index currently consists of about 30 securities listed in markets around the world, including Canada, the U.K., Australia, Poland, Mexico, and South Africa.

COPX is the second copper miners ETF to be launched in the last two months, joining the First Trust Copper Index Fund (CU). While there is significant overlap between these two ETFs, the exposure offered won’t be identical. The biggest difference between COPX and CU stems from the nuances of the underlying indexes. CU is based on the ISE Global Copper Index, an index comprised of companies that are “actively engaged in some aspect of the copper mining business.” According to CU’s prospectus, the related index “uses a modified linear weighted methodology adjusted by revenue exposure to copper production,” meaning that the weighting given to components is adjusted based on the percentage of revenue generated by copper mining. The index underlying COPX, on the other hand, includes only stocks engaged primarily in copper mining.

As such, some broad-based miners like BHP Billiton that engage in the production of a wide variety of metals are included in CU, with their weighting adjusted based on the percentage of revenue derived from copper. Because the index underlying COPX consists of companies engaged primarily in copper mining, diversified miners like Billiton are excluded altogether from this benchmark. So in that sense, COPX may offer more “pure play” exposure to copper prices.

From an expense perspective, COPX has a slight edge, charging 0.65% compared to 0.70% for CU. SIL will also charge an expense ratio of 0.65%.

Disclosure: No positions at time of writing.