HardAssetsInvestor

Written by Paul Baiocchi  |

September 28, 2012

Riding Silver's Outperformance With ETFs

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Silver's latest rally has lifted equity-based silver ETFs higher than the physically-backed funds.

[This article originally appeared on IndexUniverse.com and is republished here with permission.]

With the advent of the latest round of bond purchases by the Federal Reserve, analysts are once again getting hot and bothered about precious metals. Some say gold is going to the moon, others say it will only climb to $2,000 an ounce.

Then there are those, like Morgan Stanley and Peter Hug who believe silver is the metal to own. For those ETF investors who buy in to the silver-outperformance thesis, it’s time to start determining how to take advantage of it.

Let’s start by looking at how silver-focused ETFs have performed in the past.

During the summer of 2011, when the European economy was bursting at the seams and the threat of coordinated global monetary intervention peaked, gold and silver prices spiked, taking both to all-time nominal highs.

During that period—July 1 to Aug. 22, 2011—the performance of commodity ETFs and ETNs focused on silver outperformed equities-based silver ETPs.

Specifically, the iShares Silver Trust (NYSEArca: SLV), the ETFS Physical Silver ETF (NYSEArca: SIVR), the Etracs CMCI Silver Total Return ETN (NYSEArca: USV) and the PowerShares DB Silver Fund (NYSEArca: DBS) returned just under 30 percent compared with just over 18 percent for the equities-focused Global X Silver Miners ETF (NYSEArca: SIL).

Some speculated that the miners “didn’t believe the spike in silver” but, for whatever reason, investors holding equity ETFs targeting silver-mining firms were all outperformed by those tracking the commodity itself—by more than 10 percentage points.

Fast-forward to the latest ramp-up in silver prices in anticipation, and reaction to the Fed’s announcement of QE infinity and that dynamic has changed.