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Will Gold Continue Its Dominance Over Silver ETFs?

The weakness in the global financial markets has helped precious metals, like gold and silver, to recover their sheen in 2016. Sluggish growth in China since the beginning of the year and the global oil market turbulence has lifted safe-haven demand. The jump in gold and silver prices was also supported by plunging interest rates on a global scale. With the Fed not expected to raise interest rates in the near term, the rally is expected to continue. While gold has gained 18% and 11% year to date and in the past one month, respectively, silver has risen 10% so far this year and just 4.4% in February. Will the Trend Continue? Gold and silver prices have exhibited a strong correlation in the past 10 years. In fact, some investors regard silver as a leveraged play on gold. Per a regression analysis based on FactSet data, silver prices move 1.4 times the increase in gold prices on an average. In other words, if gold rises by 1% in a particular session, silver is expected to gain 1.45%. However, this year prices have gone the other way round as evident from the year-to-date and monthly figures. The outperformance of gold can be due to the fact that silver is widely used for industrial purposes. Weak manufacturing activities across the globe, particularly in China, have hurt the demand for the white metal, affecting its price. How to Play? But history they say repeats itself and the appreciation of gold prices over silver is not likely to be sustainable over the long run. This is because conditions in the U.S. market are slowly improving and industrial demand for silver is expected to get a boost from stepped-up domestic economic activity. Additionally, silver supply could contract given the dearth in deposits faced by the silver miners , forcing producers to look for fresh projects. Meanwhile, investors returned to risk-on trade sentiment in the recent week, which could affect the demand for gold bullion. Investors could play the market by going long on silver and short on gold. Below, we have highlighted some of the silver and inverse gold ETFs. Investors should note that since these inverse products when combined with leverage are very volatile, these are suitable only for traders and those with a high-risk tolerance and short-term outlook. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures. Still, for ETF investors who expect the outperformance of gold over silver to be short-lived, the products discussed below could make for interesting choices. Long on Silver iShares Silver Trust ETF (NYSEARCA: SLV ) The fund tracks the price of silver bullion measured in U.S. dollars. It is the ultra-popular silver ETF with AUM of over $5 billion and heavy volume of nearly 6 million shares a day. It charges 50 bps in fees per year from investors. The fund holds a Zacks ETF Rank #3 (Hold) with a High risk outlook and has returned 10.2% so far this year. ETFS Physical Silver Trust ETF (NYSEARCA: SIVR ) This fund has amassed $227.8 million in its asset base while trades in moderate volume of more than 82,000 shares per day on average. It tracks the performance of the price of silver less the Trust expenses and is backed by physical silver. Expense ratio is 0.30%. The fund also holds a Zacks ETF Rank #3 (Hold) with a High risk outlook and has returned 10.4% so far this year. PowerShares DB Silver ETF (NYSEARCA: DBS ) This product provides exposure to the silver futures market rather than spot market and tracks the DBIQ Optimum Yield Silver Index Excess Return index. It is has AUM of $19.5 million and average daily volume of less than 3,000 shares, increasing the total cost for the fund in the form of a wide bid/ask spread. DBS is the high cost choice in the silver bullion space, charging 79 bps in fees per year from investors. Like other silver ETFs, the fund holds a Zacks ETF Rank #3 (Hold) with a High risk outlook. In the year-to-date period, it has gained 10.4%. Short on Gold ProShares Ultra Short Gold ETF (NYSEARCA: GLL ) This fund seeks to deliver twice (2x or 200%) the inverse return of the daily performance of gold bullion in U.S. dollars; the gold price is fixed for delivery in London. GLL gains when the gold market falls and is appropriate for hedging purposes against the decline in gold prices. With an expense ratio of 0.95%, the product has AUM of $47 million and average daily volume of 21,000 shares. DB Gold Double Short ETN (NYSEARCA: DZZ ) This ETN seeks to deliver twice (2x or 200%) the inverse return of the daily performance of the Deutsche Bank Liquid Commodity Index-Optimum Yield Gold. DZZ initiates a short position in the gold futures market but charges a relatively lesser price of 75 bps a year. The product has amassed over $49.6 million in AUM. The ETN has volume of 432,000 shares a day. VelocityShares 3x Inverse Gold ETN (NASDAQ: DGLD ) This product provides three times (300%) short exposure to the daily performance of the S&P GSCI Gold Index Excess Return plus returns from U.S. T-bills net of fees and expenses. This $9.9 million ETN charges 135 bps in fees per year from investors and has average daily volume of 24,000 shares. Original Post

How To Bake A Highly Deficient Cake

What happens when you leave out a key ingredient in the recipe for baking a cake? We won’t keep you in suspense. What you get is a highly deficient cake, but how it is highly deficient can tell you quite a lot about what the omitted ingredient contributes to a competently executed cake! At Bristol Science Centre, Nerys and David illustrate what we can learn by baking four different cakes – one batch with all the ingredients the basic recipe calls for, then other batches where either the margarine, eggs or baking powder has been excluded from the recipe. The following video illustrates how the resulting cakes baked with a single missing ingredient differ from a proper cake baked with all the ingredients. The same principle applies to data analysis. For instance, if a set of economic data omits the contributions of one particular sector of the economy, and that sector turns out to contribute a large share to the performance of the overall economy, the analysis produced using such data that excludes the omitted sector’s contribution will be highly deficient, because the data itself is not adequately representative of the economy being analyzed. Much like what happens when you bake a cake without one ingredient and compare it with a cake baked with all of them, the deficiency becomes very evident when you compare the results of the deficient analysis with the results of analysis performed with data that does not omit the missing sector’s contributions. If a professional baker omitted an ingredient in a cake recipe, then their competence would certainly be at issue. If they weren’t aware that the ingredient was missing, it might all be chalked up to simple ignorance on their part – the kind of mistake that many of us all make from time to time, that we acknowledge, learn from and do not repeat. But if they were aware of the deficiency and then went on to claim that the results of their deficient recipe were just the same as a properly baked cake, then their integrity would certainly also be at issue. We wonder how many people would continue to buy the “cakes” of such a highly deficient professional baker!

Rate Cut Puts New Zealand ETF In Focus

Taking cues from global growth worries, the Central Bank of New Zealand surprisingly cut interest rates to a new record low on March 9 and hinted at additional easing, if need be. The move followed the bandwagon of global policy easing, especially in the developed world to boost economic growth and inflation. The central bank of New Zealand slashed its official cash rate by 25 bps to 2.25% to counter threats emanating from soft global growth mainly around China and the Eurozone. Also, uncertain global financial markets, the commodity market rout, a struggling dairy sector – one of the key contributors to the country’s GDP – and troubles in the housing market led the bank to ease its policy unexpectedly, per tradingeconomics . Prior to this, the bank had lowered its key interest rate by 25 bps in December 2015. Consumer prices in New Zealand nudged up 0.1% year over year in the fourth quarter of 2015, missing market expectations and marking the lowest level since the third quarter of 1999. This raised concerns among policy makers. Super accommodative monetary policies from Japan to the Eurozone made the New Zealand dollar stronger and kept consumer prices below the target range of 1-3%, per Bloomberg . So, a rate cut is essential to attain the 2% inflation goal by early 2018. Investors should note that New Zealand became the first nation in the developed world to raise its benchmark interest rate in March 2014. This was followed by three more hikes to 3.5% till July 2014. However, the trend reversed from June 2015 when the central bank resorted to a 25 bp rate cut to 3.25%. Market Impact The New Zealand dollar soon lost strength against the greenback following the announcement, though by 0.2% in one day (as of March 9, 2016). While a rate cut is normally viewed as a step forward in expediting growth and boosting the stock market, we are uncertain about how much return can be reaped by the strategy that New Zealand has adopted. It is true that many other developed economies are presently practicing way more accommodative policies. But they haven’t been able to make a jumpstart in their growth goals. Still, the move was probably necessary to give export a boost. The coming few days should go in favor of the New Zealand stock market. All these possibilities definitely turn our attention to the only pure-play ETF on this nation – the iShares MSCI New Zealand Capped ETF (NYSEARCA: ENZL ) . ENZL in Focus This ETF tracks the MSCI New Zealand Investable Market Index, giving investors exposure to 29 stocks. The product is not immensely popular with an asset base of $69.1 million and trading volume of about 35,000 shares per day. It charges investors 47 bps in annual fees. The fund is not widely spread across individual securities. It puts nearly 65% of the assets in the top 10 holdings with Auckland International ( OTCPK:AUKNY ), Spark New Zealand Ltd (NXTCY) and Fletcher Building ( OTCPK:FCREY ), taking the top three positions. The trio makes up for a combined 30% share. From a sector perspective, utilities, healthcare, industrials, telecom, consumer discretionary and materials receive a double-digit allocation each. In terms of performance, ENZL is up about 1.5% so far this year (as of March 8, 2016). In the last one year (as of March 8, 2016), the fund lost just 2.2%. The ETF currently yields 4.18% in dividend per annum making it a useful destination for income-seeking investors, especially at this low-yield environment. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Original Post