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Silver-Mining ETF Emerges as Latest Niche

A silver-mining ETF is the latest offering in the hot commodities market.

NEW YORK (TheStreet) -- Mining stocks got support as GlobalX Funds started selling the GlobalX Silver Miners ETF (SIL) - Get Global X Silver Miners ETF Report.

It's the latest in a flurry of mining-stock exchange traded funds, which include the

Market Vectors Junior Gold Miners ETF

(GDXJ) - Get VanEck Vectors Junior Gold Miners ETF Report

and the

First Trust ISE Global Copper Index Fund

(CU)

. GlobalX also has a new copper fund with its

Copper Miners ETF

(COPX) - Get Global X Copper Miners ETF Report

. The company has the silver category all to itself for now.

Canada accounts for 58% of the ETF, Mexico, 24%, the U.S., 10%, and Russia and Peru, 4% each. Many of the Canada-based companies have much of their operations in South or Central America.

An ETF focusing on one type of metal will have concentrated holdings, as is the case with the Silver Miners ETF. Four of the 25 stocks account for 48% of GlobalX Silver Miners ETF. As such, it's important to know about the larger holdings.

Industrias Penoles

is from Mexico;

Pan American Silver

TheStreet Recommends

(PAAS) - Get Pan American Silver Corp. Report

keeps its headquarters in Canada but has mining operations in Peru, Mexico, Argentina and Bolivia;

Silver Wheaton

(SLW)

isn't a miner at all -- it buys silver from mines where the metal is produced as a byproduct; and

Fresnillo

, also a Mexican company.

While GlobalX Silver Miners ETF has concentrated holdings, it's still less risky than owning a single silver stock. The ETF is for investors who want to own a niche segment without picking stocks in a very volatile part of the market.

Silver-mining stocks are, indeed, very volatile. That can be a good thing or a bad thing. For perspective, the

MSCI Canada Index

has an annualized standard deviation of 25 versus 49 for the index underlying the GlobalX Silver Miners ETF. The materials sector has a 3.4% weighting in the

S&P 500 Index

, so investors wanting to add exposure to miners ought to take that into account. A 10% weighting would be a huge bet that would increase volatility dramatically. A 5% weighting would add a lot of return without causing overwhelming anguish in a down market.

The ETF could serve as an emerging-markets proxy, given how many of the miners are based in developing countries. The charts for some of the larger holdings in the fund are similar to the

iShares MSCI Emerging Markets Fund

(EEM) - Get iShares MSCI Emerging Markets ETF Report

, which allocates 28% to resource stocks.

At the time of publication, Roger Nusbaum had no holdings in the securities mentioned.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;

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