Silver prices have been in an amazing upward trajectory even though the market corrected Tuesday, but exchange traded funds (ETFs) that invest in silver miners have been stuck in a range.
The disparity is a reminder that ETFs that hold miner stocks don’t always trade in lockstep with metals prices.
The Global X Silver Miners ETF (NYSEArca: SIL) was up 5.4% year to date through April 25, according to investment researcher Morningstar. Meanwhile, iShares Silver Trust (NYSEArca: SLV), which holds silver bullion, gained 51.9%. However, the silver ETF pulled back more than 3% in morning trade Tuesday.
The difference can be partly explained by the fact that investing in miner stocks introduces equity-like risks into a portfolio.
In gold, it’s the same story. Market Vectors Gold Miners ETF (NYSEArca: GDX) is trailing SPDR Gold Shares (NYSEArca: GLD).
Market Vectors Gold Miners ETF “offers exposure that exhibits significantly greater leverage to gold prices than direct physical ownership,” Morningstar’s Abraham Bailin writes in an analyst report.
“Keep in mind, however, that leverage can cut both ways,” he says. “If gold prices fail to rise, or if the cost of mining outpaces the rise of bullion prices, these companies will suffer.”
Global X Silver Miners ETF
Full disclosure: Tom Lydon’s clients own SLV and GLD.