The equities market stuck to a sideways range through April, but precious metals-related exchange traded funds shined through.
Among the top performing non-leveraged ETFs for the past month, the PureFunds ISE Junior Silver ETF (NYSEArca: SILJ) jumped 49.5%, Global X Gold Explorers ETF (NYSEArca: GLDX) increased 46.7% and iShares MSCI Global Silver Miners Fund ETF (NYSEArca: SLVP) rose 34.9%.
SILJ tracks a group of junior or small-cap silver miners. GLDX largely tracks overseas companies involved in the exploration of gold deposits. SLVP is comprised of a broader group of global silver miners.
Precious metals miners have been the standout performers of the year as gold bullion recently strengthened to a 15-month high on safe-haven demand and a weakening U.S. dollar. Precious metals-related assets have surged over the past two sessions after the Bank of Japan revealed it will be holding off on further stimulative measures, catching the markets off guard and triggering a surge in the yen currency, along with a decline in the USD.
Traders maintained their precious metals positions on the depreciating U.S. dollar and smaller interest rate hike outlook from the Fed, betting that precious metals will help hedge against a more volatile outlook and provide a safer store of wealth.
Meanwhile, gold and silver miners continued to rally on the strength in the commodities space, even outperforming bullion prices.
Looking ahead, the rally in precious metals miners may still have legs as an ongoing low-rate environment, both in the U.S. and overseas where some central banks are pushing negative-interest rates, could support investment demand for hard assets, like gold and silver, as a safer store of wealth. The low-rate environment helps diminish the opportunity cost of holding hard assets.
Specifically, as low-rates help prop up fixed-income assets, bonds yields are falling and some sovereign debt appears overbought. Alternatively, precious metals look like an attractive alternative to hedge against volatility down the road, especially after underperforming in recent years.
[related_stories]Moreover, silver, which enjoys large industrial demand from a variety of areas like chemicals and technology sectors, may also continue to outperform as the global economy picks up speed.
On the other hand, among the worst non-leveraged exchange traded products of the past month, AccuShares Spot CBOE VIX Up Shares (NasdaqGM: VXUP) fell 17.0%, C-Tracks on Citi Volatility Index ETN (NYSEArca: CVOL) declined 14.3% and ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) dropped 9.4%. The three CBOE Volatility Index, or VIX, related ETPs reflected the diminished concern over the equities market.
VXUP tries to reflect the spot price return of the CBOE Volatility Index. VXX and VIXY, on the other hand, include front month VIX futures.
The VIX is a widely observed indicator for investor sentiment in the stock market and measures the expected or implied volatility of large-cap stock options traded on the S&P 500 index. ETPs that track the VIX allow investors to profit during rising volatility or hedge against short-term turns.
Nevertheless, investors should keep in mind that the majority of VIX ETPs are designed to track CBOE Volatility Index futures contracts, not the VIX spot price, so the VIX ETPs may not perfectly reflect VIX spot price changes.
The VIX was hovering around 15.8 at the end of April, compared to this year’s low of 13.1 at the start of the month.
While the VIX is hovering around the historical average range, the low reading this month may reflect an overly complacent market. Consequently, stock investors have been quietly buying up VIX positions to hedge a potential turn in the market ahead. For instance, VXX saw $356.5 million in net inflows and VIXY added $78.5 million in April, according to ETF.com data.
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