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New Silver ETN Offers High Income Potential

The SLVO fact sheet at the Credit Suisse Web site notes that based on the first dividend payout, the yield annualizes out to 12.63%. Any future dividends will be based on future call premiums, which are not knowable. The yield could be more or less than 12.63%; it all hinges on future call prices.

Another critical point of understanding is the exchange-traded note structure. ETNs are unsecured debt obligations if the issuer, in this case Credit Suisse. Standard & Poor's currently rates Credit Suisse's long term debt at A+ with a negative outlook. A failure is of course unlikely, but if it happens, note holders could be wiped out.

The role of SLVO in a portfolio would be as a holding in tandem with the more-standard SLV exchange-traded fund. (Investors can make similar combined purchases of GLDI and GLD.)

To the extent that precious metals offer a form of insurance, putting a portfolio's entire precious-metals allocation into a fund that caps the upside (such as GLDI or SLVO) isn't ideal.

Instead, investors could consider a 50/50 split between the traditional fund and the call-writing cousin.

This would create some income and allow part of the position to run in the face of large, fast moves in the underlying metals.

At the time of publication, Nusbaum's firm held shares of GLD on behalf of clients.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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GLDI $11.85 0.00%
GLD $115.06 0.00%
SLVO $11.61 0.00%
SLV $16.22 0.00%
AAPL $123.25 0.00%


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