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Silver Mining ETF Enjoys Strong Debut

The relatively new Global X Silver Miners ETF is attracting a lot of attention from investors.
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NEW YORK (TheStreet) -- As the price of gold continues to creep higher after stalling out in mid-May, investors may also wonder if they can find a more dynamic investment in silver.

As with gold, investors interested in silver have several options, including the option to invest in a physically backed ETF or an ETF that provides exposure to the price of the metal through the mining companies.

The traditional physically backed ETFs are

iShares Silver Trust Fund

(SLV) - Get Report

and

ETFS Physical Silver Shares ETF

(SIVR) - Get Report

, while the option for silver miner exposure is the

Global X Silver Miners ETF

(SIL) - Get Report

.

Like gold miners, silver miners are expected to be more volatile of an investment than the metal itself, and SIL's dynamism has already been displayed, having risen the past month by about 12% compared to an increase of about 5% for SLV.

The fund, which debuted in mid-April, has gathered a large amount of investor attention, and those considering the fund would not have to worry about liquidity concerns.

With many ETFs, there are a large number of holdings and net assets are distributed among them to the extent that no single company's performance alone can influence the performance of the fund, even on a long term horizon.

In the case of SIL. though, the top holdings account for a large portion of total net assets. Investors should spend some time learning a bit more about these companies, since their performance will be capable of impacting the ETF over the mid to long term.

The top holding of SIL is Fresnillo PLC, which accounts for 13.9% of net assets. The company has extensive operations in Mexico that make them the largest primary producer of silver in the world. Additionally, investors should consider that the company is also a large producer of gold.

Shares of the company are primarily traded in London, so although operations take place in Mexico, the share value as reflected in the ETF will be affected by changes in the exchange rate between the U.S. dollar and British pound, not the U.S. dollar and the Mexican peso.

The second largest holding in SIL is

Silver Wheaton

(SLW)

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, which accounts for 13.6% of net assets. SLW is listed in the U.S. but has its headquarters in Canada. It operates in many different corners of the globe, with metal purchasing agreements and affiliates across Europe and the Americas.

After SLW, the company taking up the most room in SIL is

Pan American Silver

(PAAS) - Get Report

, which accounts for 12.2% of the fund. Unlike the previous two companies, PAAS focuses solely on silver as opposed to also dabbling in gold. It operates eight mines in South America, with more in development.

The last of the big four in SIL is

Industrias Penoles CP

, which accounts for 10.8% of the ETF's net assets. The company is a large producer of silver from mines in Mexico, but it also has significant gold, lead, and zinc interests in the country.

Since silver prices tend to be more volatile than gold prices, the silver miners can also be expected to be more volatile than gold miners such as

Market Vectors Gold Miners ETF

(GDX) - Get Report

and

Market Vectors Junior Gold Miners ETF

(GDXJ) - Get Report

. Additionally, with 50% of assets in the top four holdings, this ETF is more susceptible to company specific risk.

SIL should not be considered a safe-haven investment like gold or silver. Instead it is more of an aggressive play for investors that want to catch a rally in silver prices.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion Money Management was long Market Vectors Gold Miners ETF.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.