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Silver Miner ETF's – A Benchmark

Friday, October 21, 2016 3:49
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(Before It's News)

Silver miners are barely significant when compared to the gold mining sector, Despite doubling, gold miners remain but a niche market. With two Silver Miner ETF's this tiny sector is very well covered.

Global-X silver miner ETF (SIL)

Global-X was first to start a Silver Miner ETF back on April 19, 2010. By coincidence silver quoted at $17.50 at that time, almost equal to its current market price. Yet, the metal was in a solid uptrend more than doubling in value over the next 12 months, before sliding back and entering its 4 year bear market. Near the silver miners market bottom, SIL proceeded to a 3:1 reverse split.  The ETF has a 0.65% yearly expense ratio. Its current market cap is $ 402 Million.

Junior Silver miner & explorer ETF (SILJ)Purefunds launched its silver miner ETF over 2.5 years later on Nov 29, 2012. Silver still closed at $33.76 that day. With hindsight this was rather ill timed, since precious metals were to break below 'support levels' in April 2013, slashing the value of miners. That meant the real start of the precious metal miner bear market. The ETF has a 0.69% yearly expense ratio. Its current market cap is $ 67 Million.

Portfolio differences

Both issuing companies of those mining ETF's allow analysis of the complete ETF composition at any time. Positions and weights are prone to change over time. The present benchmark therefore only is indicative. Yet you can view the current composition of both ETF's here.

SIL has 21 positions with the top 5 accounting for 45% of the portfolio.

Global X Silver Miners ETF
Fund Holdings Data as of 10/20/2016
Ticker Name Market Price ($) Shares Held Market Value ($) % of Assets
SLW SILVER WHEATON  24.41 2,057,517 50,223,989.97 12.495
FRES.L FRESNILLO PLC 20.2 2,422,165 48,927,833.82 12.172
PAAS PAN AMERICAN SILVER 16.89 2,746,633 46,390,631.37 11.541
TAHO TAHOE RESOURCES 11.98 2,949,914 35,340,476.50 8.792
HL HECLA MINING CO 5.97 4,244,109 25,337,330.73 6.303



stock_ticker
security_desc
shares
market_value
% of holdings
CDE
COEUR MINING INC.
1036947
           11,727,870.57
17.39
PAA CN
PAN AMERICAN SILVER CORP
581298
              9,821,658.84
14.57
AG
FIRST MAJESTIC SILVER CORP
709059
              5,927,733.24
8.79
HOC LN
HOCHSCHILD MINING
1243585
              4,180,015.24
6.2
SVM CN
SILVERCORP METAL INC COM
1386884
              3,891,498.74
5.77


SILJ has 25 positions, yet the top 5 is accounting for 47% of the portfolio. Hence the real 'concentration' is slightly higher, despite the diversification.

Purefunds Junior Silver Miner & Explorer ETF

Among the top 5, we only find Pan American Silver in common. Yet in the total portfolio, SIL has a position in 11 components SILJ is invested in, whereof the complete top-5 of SILJ and an additional set of 4 positions SILJ is invested in for over 4% of its holdings. That leaves 10 specific components within the SIL portfolio. Thereof are however four of its top-5 holdings.  Silver streameer SLW is prominantly absent from the SILJ portfolio as is Fresnillo, the world largest silver miner and Tahoe Resources, the emerging major producer.

* * *

SILJ counts 11 common components with SIL. That includes the complete top-5. However SIL has smaller weights assigned to those. Only for PAAS the weight is comparable. The high 'diversificaton' for SILJ is attained due to 8 different holdings counting less than 1% of the total portfolio value, whereas in SIL there are only three little significant positions.

Personally I don't like the overweight position in Coeur Mining. That company has a decade tradition of lagging the sector average performance. The 2010 recovery has been but a brief bright spot in its history. After plunging to a $1.62 intraday low in January, the recovery however has been impressive. Coeur also upheld better than First Majestic (third with a 8.79% weight), which has been overvalued as silver topped out in August. Moreover the bashing report on First Majestic hasn't missed its goal: the stock slid well over 50% since topping above $19.

* * *

Conclusion

Due to the large number of common holdings and small portfolio percentage assigned to explorers and junior producers within SILJ, that ETF doesn't really deserve its denomination. High weights are assigned to silver market recovery plays, which may entail short term success but are probably not sound investments over the long haul.

SIL has its major focus on some 'safe bets' (if there are any worth that connotation among silver miners). The large position in Silver Wheaton has a stabilizing effect and may entail this ETF outperforming its peer over the long haul. 

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