Core Truths About Silver ETF Funds
Silver ETF funds are an elementary way for investors who are new to the precious metals markets to be able to tap into the profits from silver investing without even every holding a silver coin in hand. SLV is one of the most popular silver ETF funds out there. SLV seems at first blush like it might be related to the popular GLD gold ETF, but GLD is the SPDR Gold Trust product whereas SLV is the iShares Silver Trust available on the New York Stock Exchange. The iShares Gold Trust product (IAU) never gained the traction and is the little brother to GLD, but SLV seems most prominent in the silver ETF funds arena.
I personally would never own SLV or any related product, but I want to discuss because of the popularity and likelihood that a lot of people will continue to pour money into these vehicles. If you intend on being one of them, at least look at your options before taking advice from your next door neighbor. ETF Securities, which produced the ETFS Physical Gold Shares (SGOL), has the ETFS Silver Trust that can be purchased under SIVR on the NYSE.
Silver ETF Funds With Greater Appeal
The purpose of SIVR is to move with the price of silver bullion, and so every share relates to a single ounce of silver. SIVR began in July of 2009 and, since competitors like SLV started several years earlier, SIVR is a newer product. Not surprisingly, SIVR is a smaller fund and also has lower average daily trading volume. The biggest difference apparent to me is with accounting.
I mentioned in another writing on Gold ETF Funds that SGOL (the ETF Securities product) had more parsimonious custodian arrangements than GLD, and the same holds true when you compare SIVR to SLV. HSBC in London is used to warehouse the silver for SIVR, and more greatly restricts the use of sub-custodians. Any time there are constraints on what they can do with the underlying metal, that is a good thing.
Silver ETF Funds With No Silver!
As more mainline investors are attracted to silver, the rise in popularity among silver ETF funds will lead to even more choices. So, realize that you can also already choose to go with products like the PowerShares DB Silver Fund (DBS). There is also the E-TRACS CMCI Silver Total Return (which trades under USV). These are distinct in that they use futures contracts to run with price moves in silver. Thus, they don’t really own physical silver. They can be more volatile through using futures too. This can give exponential leverage on moves up, but it presents more downside risk too. Plus, USV is actually an exchange-traded “note,” making it an ETN instead of technically being an ETF. As a result, there is additional credit risk. Add to that some illiquidity, since the trading volume is low.
Silver ETF Funds With Greater Upside
As is my take on gold, I would prefer an ETF that uses mining stocks over one that tracks silver bullion prices. The leverage allows for greater returns, just as something like the ProShares Ultra Silver ETF (AGQ) seeks to produce returns amounting to 200% of the daily silver bullion price moves. ProShares also has the Ultra Short ETF that trades under ZSL and aims for twice the inverse of silver’s daily price moves. It could be used for different purposes, but that’s beyond the scope of this writing. You can always look into still other products, such as SIL, but the reality is that a basket of hand-selected individual stocks will give you the lowest cost of ownership and the freedom to move in an out of positions at will that has consistently produced greater gains for me. Things like AGQ and ZSL may be fine to trade in some instances. But I dislike them for investment purposes in general and prefer my own stock picks.
