The trend for silver has been a pretty volatile one over the past couple of years. Prices for the white metal rocketed in the first half of the year, however, since then the precious metal has not really regained its momentum.
It did show signs of a promising recovery now and then, but a strong dollar and risk aversion climate caused investors to move away from the white metal for the time being (read Are Silver ETFs Back on Track?).
Nevertheless, current domestic as well as global macroeconomic cues do tend to indicate a surge in silver prices. The monetary easing (QE3) by the Federal Reserve is expected to undervalue the dollar thereby making commodities, particularly precious metals, a more lucrative investment avenue.
Also, with the Federal Reserve all set to put $85 billion worth of ‘new money’ in the economy, silver surely has a bullish case in place going forward.
Even if the Fed does tighten up a bit, the recent industrial production surge from China and the U.S, vast improvement in the labor market in the U.S and consumer spending and confidence, production and consumption seems to be heading upwards.
Therefore the consumption demand for silver is most likely to increase from here onwards, giving a bullish case for the metal from an industrial perspective as well (read ETFs in a QE3 World).
Also, while the fiscal cliff is behind us, the issue of the debt ceiling is now looming large. This event could increase volatility and make lower risk avenues like precious metals more in demand, potentially creating another great reason for bullishness as we push into 2013.
Given this, a look at a top ranked Silver ETF could be the way to target the best of the segment, preferably by using the Zacks ETF Rank.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook of the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors as well.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, Zacks Rank reflects the expected return of an ETF relative to other ETFs with similar level of risk (see more in the Zacks ETF Center).
Using this strategy, we have found a Ranked 1 or ‘Strong Buy’ Silver ETF which we have highlighted in greater detail below:
PowerShares DB Silver ETF (DBS)
DBS tracks the DBIQ Optimum Yield Silver Index Excess Return which tracks the performance of silver. The index is comprised of silver future contracts and the fund was launched in January of 2007 and since then has been able to amass an asset base of $66.82 million.
On average around 16.000 shares of the ETF trade each day. DBS charges a high 79 basis points in fees and expenses. Not surprisingly, the ETF is extremely volatile having an annualized standard deviation of 38.75% given its focus on futures contracts which are more volatile than spot prices (see A New Breed of Gold ETFs on the Horizon?).
The ETF has returned around 2.2% in the trailing one year period, but it has faced some weakness in the preceding few months. Still we look for this to turn around in 2013 as we currently have a Zacks ETF Rank of 1 or ‘Strong Buy’ on the product, suggesting a stronger 2013 for this silver ETF.
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