Expense Ratios, Risk Profiles, and Portfolio Makeup: An Insightful Comparison of Two Metal Funds

Investing in precious metals can be a rewarding strategy for many investors. The choice often comes down to how you want to gain exposure: through mining stocks or physical bullion. Today, we’ll explore two distinct funds—the Global X – Silver Miners ETF (SIL) and the SPDR Gold MiniShares Trust (GLDM). These vehicles cater to different investor appetites and risk tolerances, making them essential considerations for your investment strategy.

Snapshot: Cost & Size

Understanding the fundamentals of each fund can illuminate which might be more suitable for your financial goals.

GLDM stands out with an impressively low expense ratio of just 0.10%, which can be a game changer for cost-sensitive investors. However, it does not provide any dividend income, unlike SIL, which yields 1.18%. This makes SIL potentially more appealing for those seeking dividend income alongside capital appreciation.

Performance & Risk Comparison

When assessing investment options, understanding past performance and risk is crucial.

Although SIL has seen a remarkable return of 186.7% over the past year, it has a max drawdown of 56.79%, indicating heightened volatility and risk. In contrast, GLDM’s drawdown of 21.63% suggests a more stable investment experience. The growth of $1,000 in GLDM outpaces SIL over five years, showcasing its steadier nature.

What’s Inside Each Fund

Understanding the components of each fund can help you gauge how they align with your investment goals.

GLDM is structured as a trust that exclusively holds physical gold, providing 100% exposure to gold bullion prices. This straightforward approach appeals to investors seeking a no-frills way to invest in gold without the complications of mining operational risks.

On the other hand, SIL consists entirely of stocks from silver mining companies, such as Wheaton Precious Metals, Pan American Silver, and Coeur Mining. These companies account for over 40% of its assets, leading to both the potential for higher returns and increased risks associated with the mining sector.

What This Means for Investors

Both SIL and GLDM provide distinct pathways to invest in precious metals, but they do so in fundamentally different ways.

Risk and Return Dynamics

For those seeking aggressive growth and willing to absorb higher risks, SIL might be the preferable choice. It’s directly impacted by fluctuations in silver prices and the operational stability of mining companies. Therefore, its performance can be significantly more volatile compared to GLDM.

Conversely, if stability and predictable returns appeal more to you, GLDM’s backing by physical gold may be the safer bet. Historically, gold has exhibited less volatility, which is reflected in GLDM’s lower beta and max drawdown.

Cost Considerations

Investors sensitive to fees will find GLDM’s dramatically lower expense ratio advantageous. Over time, the impact of lower fees on investment returns can be substantial, particularly for long-term investors.

Glossary

• ETF (Exchange-Traded Fund): A fund that trades on stock exchanges, holding a basket of assets.
• Expense Ratio: Annual fund operating costs expressed as a percentage of the fund’s average assets.
• Dividend Yield: Annual dividends per share divided by the current share price, shown as a percentage.
• Total Return: Investment performance that includes price changes plus all dividends and distributions, assuming reinvestment.
• Beta: A measure of how volatile an investment is compared with a benchmark index, usually the S&P 500.
• AUM (Assets Under Management): The total market value of all assets managed by a fund.
• Max Drawdown: The largest peak-to-trough decline in an investment’s value over a specific period.
• Compounded Growth: Growth where returns are reinvested, so gains themselves begin to earn additional returns.
• Physically Backed Gold Trust: A fund structure that holds actual gold bullion to track the metal’s price.
• Sector Tilt: When a fund has heavier exposure to certain industries or sectors than the broader market.
• Basic Materials Sector: Industry group that includes companies that extract or process raw materials like metals, minerals, and chemicals.
• Mining Sector: Industry of companies that explore for, extract, and process minerals and metals from the earth.

Decisions in investment shouldn’t just be made on past performance or high yields alone. Understanding the intricacies of each fund—such as risk profiles, expense ratios, and portfolio composition—will aid in aligning them with your specific investment strategy. Whether you lean towards the volatility of silver mining or the stability of physical gold, both SIL and GLDM offer unique avenues for navigating the precious metals market.