ETF Securities: What's Next

At the start of the week, investors learned that a leading provider of domestic and international commodity-linked exchange traded products may be putting itself on the selling block.

Although the news is noteworthy, investors should remain calm and avoid taking any brash action as long as the overall impact remains unknown.

ETF Securities has become a notable success story within the U.S. ETF universe. Although the company had managed to gather plenty of attention in the international ETF realm since the first half of the decade, it was not until 2009 that domestic investors were able to access the company's products.

Despite being introduced into a highly competitive environment, the company's first U.S.-listed products -- ETFS Physical Silver Shares(SIVR) and ETFS Physical Swiss Gold Shares(SGOL) -- have managed to hold their own, boasting $619 million and $1.8 billion in assets, respectively.

Like other companies such as Vanguard, ETF Securities has turned to costs in order to attract fans to its product line. The SIVR's 0.39% expense ratio undercuts the veteran iShares Silver Trust(SLV) by 11 basis points. SGOL, meanwhile, held rank as the cheapest physically-based gold ETF until Blackrock(BLK) decided to slash the expenses associated with iShares Gold Trust(IAU) in mid-2010.

In addition to taking aim at veteran products, the company has become a precious metal pioneer as well. In the period following the launch of SIVR and SGOL, the firm introduced the first-ever ETFs backed by physical stockpiles of both platinum and palladium. Additionally, the launch of the ETFS Physical Precious Metals Basket Shares(GLTR) and the ETFS Physical White Metals Basket Shares(WITE) has allowed investors to gain one-stop-shop exposure to a diversified basket of physical precious metals.

According to the November fund flow data compiled by the National Stock Exchange, the company's line of seven products had managed to accumulate nearly $4 billion in assets. In Europe, meanwhile, the company is reportedly the fourth largest fund provider in terms of AUM.

With this level of success, it is understandable that followers of the ETF industry were caught off guard by reports that the company may now be up for sale. The Financial Times reports that the company is looking for $1.6 billion. Goldman Sachs(GS), the firm that has been hired as an adviser for the sale, is reportedly asking that unconditional offers be submitted before Christmas.

Based on what we have seen in the past, there are a number of ways this scenario can play out.

For instance, a purchase can have little to no effect on investors. A prime example of this scenario occurred in mid-2009, when Blackrock took over the iShares product line from Barclays through its purchase of Barclays Global Investors. The cash and stock deal was valued at $13.5 billion. The transition to Blackrock from Barclays caused little in the way of shake-up for iShares investors.

In other cases, however, a takeover can lead to a dramatic restructuring of a company's offerings. In 2011, it was announced that Merrill Lynch was in the process of handing over control of six of its HOLDRS funds to Van Eck. Under the new management, funds like the Oil Services HOLDRS(OIH) would see a considerable facelift; while these products will maintain their familiar ticker symbols, they will adopt brand new names and underlying indices.

Given the success and popularity of ETF Securities' product line, I do not foresee this latter scenario playin! g out. I nvestors with exposure to funds like SGOL and ETFS Physical Palladium Shares(PALL) will want to keep tabs on how this situation progresses. However, for now, there does not appear to be any reason to be alarmed.

In its young existence, the ETF universe has witnessed a number of exciting shifts. This news is just the most recent development in this industry's ongoing evolution.

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