Tony's ETF Buyer's Guide: Silver ETFs

Physical silver ETFs

Physical silver ETFs are similar to their gold counterparts, providing direct exposure to the price movements of silver minus associated expenses.

These funds operate by purchasing physical silver and securely storing it in vaults under the oversight of a custodian, with regular audits to ensure accountability.

Interestingly, most of these funds are not technically ETFs but are structured as grantor trusts, a distinction that affects their legal standing and taxation but not their tradability or the general return profile for investors.

For the end investor, trading a silver trust feels much like trading any other ETF, with the trust's shares bought and sold on an exchange throughout the trading day. However, the tax implications can be different.

Unlike traditional ETFs governed by the Investment Company Act of 1940, these trusts might not qualify for certain tax advantages available to conventional mutual funds and ETFs. This nuance in taxation could impact how gains from the trust are taxed, depending on individual circumstances.

Two of the most popular physical silver ETFs include the iShares Silver Trust

and the abrdn Physical Silver Shares ETF

SIVR

.

Physical silver CEFs

When it comes to the Sprott Physical Silver Trust (PSLV), there's a unique twist—it's a closed-end fund (CEF), not an open-ended ETF like many others. This means that the number of shares issued is fixed at the fund's initial public offering and does not fluctuate with investor demand, as typical ETFs do.

Consequently, shares of PSLV can trade at premiums (higher than) or discounts (lower than) to the net asset value (NAV) of the silver it holds. This structural difference can lead to unique opportunities for savvy investors.

For instance, despite the recent run-up in silver prices, PSLV is currently trading at a -4.04% discount to its NAV as of May 21. This effectively means you're purchasing silver at $0.96 on the dollar, a rare chance to buy below the spot market price.

However, it's important to remember that there's no guarantee this discount will narrow. In fact, under certain market conditions, selling pressure could widen it. Conversely, sustained buying pressure could result in a premium to NAV, which should be avoided as nobody likes to overpay.

Silver miner ETFs

If you're looking for a blend of exposure that ties to the silver market but with the dynamics of the equity market, consider ETFs that invest in publicly listed silver mining companies such as the Global X Silver Miners ETF

or the iShares MSCI Global Silver Miners ETF

SLVP

.

This approach links your investment to the fluctuations in the spot price of silver, but the correlation isn't perfect. Why? Because individual stocks carry idiosyncratic—or company-specific—risks that can diverge from metal prices.

Historically, the prices of silver mining stocks often act like a leveraged play on the spot price of silver. This effect is primarily due to their operational structure: when the price of silver rises, the potential revenues from mining can increase significantly. Since costs may not rise to the same extent, profit margins can expand, leading to amplified stock price movements.

This is particularly pronounced in junior mining companies found in the Amplify Junior Silver Miners ETF

, which focus more on exploration than actual production. These firms are typically more volatile and can see exaggerated movements in their stock prices relative to changes in silver prices.

Leveraged/inverse silver ETFs

Finally, for short-term traders, there are leveraged and inverse ETFs designed to provide daily magnified exposure to silver price indices.

These products, like the ProShares UltraShort Silver ETF

for bearish bets and the ProShares Ultra Silver ETF

AGQ

for bullish positions, enable traders to speculate on silver prices without the complexities of futures or the risks associated with short selling, like margin calls. The maximum loss is confined to the amount invested in shares.

However, these ETFs are not meant for long-term investment due to their inherent volatility. They reset daily, meaning their performance can deviate significantly from the expected target return of the underlying index over longer periods due to the effects of compounding. Additionally, they are relatively costly, with both ZSL and AGQ charging an expense ratio of 0.95%.

 

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.