ETF Showdown: Finding the Best Silver ETF

February 3, 2012 2:15 pm
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ETF Showdown: Finding the Best Silver ETF

Despite a strong January jobs report, the iShares Silver Trust (NYSE: SLV), the largest ETF backed by physical holdings of the white metal, is trading lower by almost 2%. That may just a minor blip on the radar and healthy pullback because to say SLV has been on fire this year is an understatement. Buoyed by improving economic data in the U.S., silver futures have soared and SLV was flirting with a 20% year-to-date gain before the start of trading Friday.

More impressive is the fact that among both gold and silver, miners are finally keeping pace with the underlying metals. That condition was not present much last year.

Resurgent mining stocks has been a boon for the Global X Silver Miners ETF (NYSE: SIL), which until earlier this week was the lone silver miners ETF on the market. Now, the Global X Silver Miners ETF has some competition and it comes in the form of the the iShares MSCI Global Silver Miners Fund (NYSE: SLVP). SLVP debuted on Thursday.

Sounds like we’ve got an ETF Showdown on our hands. According to the iShares Web site, the iShares MSCI Global Silver Miners Fund, has already raked in more than $2.5 million in assets under management. That’s good work in just two trading days, but SIL’s first-to-market advantage should not be taken lightly. SIL, which will celebrate its fourth birthday in April, has nearly $373 million in AUM.

Since we’re talking about silver miners and not oil or tech stocks, it’s pretty easy to have some overlap among the ETFs’ top-10 holdings. In order, these are SLVP’s top-10 holdings: Silver Wheaton (NYSE: SLW), Buenaventura Mines (NYSE: BVN), Industria Penoles, Fresnillo, First Majestic (NYSE: AG), Coeur D’Alene (NYSE: CDE), Tahoe Resources, AuRico Gold (NYSE: AUQ), Pan American Silver (Nasdaq: PAAS) and Hochschild Mining.

Seven of those stocks appear in SIL’s top-10 holdings. The three differences in SIL are Polymetal International, Silver Standard (Nasdaq: SSRI) and Silvercorp (NYSE: SVM). Overall, SIL is home to 31 stocks compared to 29 for the new iShares offering.

Neither ETF has much of U.S. feel to it as the States account for about 10% of each fund’s country weight. Canada and Peru represent almost 70% of SLVP’s weight and are the only countries in the ETF with double-digit allocations (the U.S. checks in at 9.6% to be precise). On the other hand, SIL gives double-digit weights to five countries – Canada, Mexico, the U.K., Russia and the U.S.

In SLVP’s favor, the ETF’s weight to Silver Wheaton, perhaps the silver stock U.S. investors are most familiar with, is almost 19% compared to almost 12% in SIL. Additionally, SIL features no exposure to Buenaventura, but that stock is 11.1% of SLVP’s weight.

The big deal for many investors should be the fact that SIL has an expense ratio of 0.65% compared to 0.39% for SLVP. That’s not bad news for SIL investors. In fact it might be good news. In recent years when iShares has encroached on a another ETF issuer’s territory with a “me too” fund, the other issuer has at times responded by lowering its own expense ratios.

There is no guarantee Global X will do that with SIL, but it is a possibility. Then again, while many of the iShares copycat funds have proven successful, think the iShares MSCI Russia Capped Index Fund (NYSE: ERUS) and the iShares MSCI Indonesia Investable Market Index Fund (NYSE EIDO) as two examples, they haven’t always surpassed the original ETF in terms of AUM.

Combine SIL’s size with a more diverse country portfolio and its first-to-market advantage and we’ll stick with old man of silver miner ETFs until a legitimate reason to change course appears.

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