Exchange traded funds (ETFs) have gained popularity among investors in recent years, mainly because they offer low management fees.

However, you should always keep in mind that not all exchange traded funds are created equal. For example, there are a lot of ETFs that have been created to tap into popular, but risky, themes and fads. So you need to be very selective with your ETF holdings.

Exchange traded funds are set up to mirror the performance of a stock-market index or sub-index. They hold a more or less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short.

For example, a member of Pat McKeough’s Inner Circle recently asked us about Global X Silver Miners ETF (symbol SIL on New York). The fund tracks the Solactive Global Silver Miners Index, which includes between 20 and 40 international companies that mine, refine or explore for silver (see below for more on this ETF’s holdings).

Use caution when investing in silver

Silver prices tend to rise along with gold prices. That’s because when gold prices soar, as they have lately, investors see silver as less of an industrial commodity and more as a precious metal. Sometimes known as “poor man’s gold,” silver attracts a lot of interest as gold prices reach levels that seem too expensive for the average investor.

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Conservative investors should be careful when making silver investments, as they would be with any volatile commodity investment. Further, silver should only make up a modest part of the resources segment of your portfolio.

This exchange traded fund offers a convenient way to hold silver-mining stocks

If you want to invest in silver, we think the best way to do it is through silver-mining stocks. We recommend staying away from silver bullion, certificates representing an interest in bullion, and other silver bullion alternatives, such as so-called “junk silver” coins (these are common coins with no numismatic value that trade strictly on their silver content).

Commodity investments like these do not generate income. Instead, they come with a continuing cash drain for management, insurance and so on.

You can hold silver stocks directly, through mutual funds, or through exchange traded funds like Global X Silver Miners ETF, which we recently analyzed for a member of Pat McKeough’s Inner Circle.

Global X Silver Miners ETF began trading on April 19, 2010.

Canadian-based companies make up 58% Global X Silver Miners ETF’s holdings, but it also includes companies based in Mexico (24%), the U.S. (10%), Peru (4%) and Russia (4%). The fund’s MER is 0.65%.

The ETF’s top-ten holdings are Silver Wheaton Corp. at 13.9%; Pan American Silver, 12.3%; Fresnillo plc, 11.2%; Industrias Penoles SAB de CV, 10.3%; Silvercorp Minerals, 5.2%; Coeur d’Alene Mines, 5.0%; Hecla Mining, 4.9%; Silver Standard Resources, 4.8%; Gammon Gold, 4.6%; and Polimetall OAO, 4.0%.

If you have investment-related questions, or if you’d like to ask us about stocks or other types of investments you’re considering buying (or selling), you should join our Inner Circle service. Click here to learn more.