Comparing Metal Equity ETFs

By Matthew McCall | April 17, 2012 AAA

The bull market for commodity equities may be over in the minds of some, while others feel another big leg is right around the corner. Whether you are on the bullish or bearish side of the argument, it is important to know what commodity equity ETFs are available.

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Most investors are familiar with the SPDR Gold ETF (ARCA:GLD) and related ETFs that track the price of the commodity metal futures. Before the introduction of commodity ETFs, the option for investors was either buying the actual metal commodity, futures contracts or commodity related stocks. Most opted for the last option, because it was the most convenient and least expensive.

Metal Commodity Stocks
The choices in the world of metal commodity-related stocks are large and diverse and can be overwhelming for the average investor. This is just one reason ETFs have become so popular to individual investors who do not have the time or expertise to pick single stocks.

Gold: The Market Vectors Gold Miners ETF (ARCA:GDX) has over $8 billion in assets under management and has become the top gold mining ETF in the industry. The ETF is composed of 31 gold mining stocks with 63% of them headquartered in Canada. The U.S. makes up 15% and South Africa 13%. The ETF charges an expense ratio of 0.53%.

Since the beginning of 2008 the ETF has lost 12.8% of its value versus a gain of 81% for GLD. The miners have clearly lagged the metal they extract from the ground. If that divergence closes in the future, the performance of GDX should begin to catch up to GLD and will outperform the price of the underlying metal.

SEE: The 5 Best Performing Gold ETFs

Silver: The Global X Silver Miners (ARCA:SIL) is a basket of 31 silver mining companies with 44% in Canada, 14% in Mexico and 12% in the U.K. The fund charges an expense ratio of 0.65%. Since the end of April 2010, the ETF is up 42% versus a gain of 67% for the iShares Silver ETF (ARCA:SLV) that tracks the price of the spot price of silver. (SIL began trading in April 2010.)

Copper: The Global X Copper Miners ETF (ARCA:COPX) also began trading in April 2010 and is down 2.5% since the end of its first month. The iPath Copper ETN (ARCA:JJC) is up 2.6% in the same timeframe. The basket of 34 copper mining stocks charges an expense ratio of 0.65% and is also heavily invested in Canada (47%) and the U.K. (14%).

Aluminum: The Global X Aluminum ETF (ARCA:ALUM), which began trading Jan. 4, 2011, has fallen 34% since its inception. The iPath Aluminum ETN (NYSE:JJU) is down 24% during the same time. A total of 22 stocks are in the ETF that charges investors an expense ratio of 0.69%. The U.S. accounts for 25% of the ETF with the U.K. at 18%.

SEE: How To Pick The Best ETF

The "Right" Metal Commodity ETF
I cannot say there is a "best" metal commodity ETF for all investors. It all depends on what the goal is and the risk tolerance, as well as where the overall metals sector is at the point an investor is looking to initiate a new position.

One final option for investors could be a diverse mining ETF, such as the SPDR Metal & Mining ETF (ARCA:XME). The ETF is composed of 43 mining related stocks that are heavily invested in steel (33%), coal (16%), and precious metals (16%). With an expense ratio of 0.35% it is a cheap options for investors. Since the end of April 2010, the ETF is down 14% lagging both silver and copper. This is due to the large exposure to steel stocks.

The Bottom Line
Unfortunately there is no clear-cut winner in the world of metal commodity ETFs, it all depends on timing and the individual investor.

SEE: An Inside Look At ETF Construction

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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

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