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ETF News And Commentary

Silver started the year 2012 on a strong note but as the year progressed , a sluggish global economic outlook coupled with a strong dollar, kept the prices on check (read: Top Commodity ETFs In This Uncertain Market). Still silver managed to outperform many other commodity products in the space since the beginning of the year. The metal got further support from the announcement of another round of quantitative easing (QE) last week.

While it is aimed at enhancing economic growth, QE3 might also curtail the dollar value, providing further boost to the silver bullion prices. The demand for this precious metal has been growing due to low interest rates in the developed and many emerging markets, that are attracting investors towards precious metals for better storage of wealth.

The white metal will not only continue to benefit from being a precious metal and a store of wealth, but also from a number of key industrial applications (read: Are Silver ETFs Back on Track?). About 50% of the metal’s total demand comes from industrial applications while 30% comes from jewelry/silverware/coins and medal manufacturers.

Silver metal ETFs are generally more volatile than their gold counterparts thanks to high beta (read: Four Easy Ways to Play Beta and Volatility with ETFs). As a result, investors might like to consider suitable silver ETFs to play the bullish trend in the precious metal space.

Below we have analyzed two Zacks #1 Rank (Strong Buy) ranked silver ETFs - iShares Silver Trust (SLV - ETF report) and EFTS Physical Silver Shares Trust (SIVR - ETF report) as we expect these funds to outperform their peers.

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium, or High.

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other products with a similar level of risk.

iShares Silver Trust ETF (SLV - ETF report)

Launched in April 2006, this fund generated nearly 104% of returns over the past three years. It is the largest and most popular silver bullion ETF in the space with assets of $10.4 billion under management (see more ETFs in the Zacks ETF Center).

The fund tracks almost 100% the physical price of silver bullion measured in U.S. dollars, and kept in London under the custody of JPMorgan Chase Bank N.A.. Each share represents about an ounce of silver at current prices. The trust issues and redeems shares in the basket form, and hence the ETF often loses its value relative to the actual silver price.

The product offers diversification benefits for the long-term investors, making it the most attractive metal after gold. Though not a low-cost choice due to its 50 bps expense ratio, SLV has a lower bid ask spread, which could lessen total costs slightly for this popular fund. The ETF is highly traded in volumes of more than 12 million shares per day on average (read: Guide to the 25 Most Liquid ETFs).

The fund has gained over 24% so far this year (as of September 14), making it a solid bet at present.

ETFS Physical Silver Shares (SIVR - ETF report)

This fund has emerged as a strong winner in the silver bullion space, returning more than 104% over the last three years. It offers simple and cost-efficient ways to investors seeking exposure to silver bullion.

Launched in July 2009, the product so far attracted assets of $594.8 million and tracks the spot price of silver, net of fees and expenses. It owns silver bars to back the shares under the custody of HSBC Bank USA in London.

The product is the low cost choice in the silver commodity space charging investors a fee of 30 bps per year with low bid/ask spread and good tracking error. It trades in volumes of more than 200,000 shares per day. Like the iShares counterpart, the product generated excellent returns of about 25% year-to-date (as of September 14) (read: The Five Best ETFs over the Past Five Years). 

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