The market conditions of 2022 provided a compelling case as to why investors should diversify their portfolios beyond stocks and bonds. Thanks to a rare combination of persistent inflation and rising interest rates, both equities and fixed-income assets fell together, causing even the most balanced of portfolios to record higher-than-expected losses.
To hedge these losses, investors have turned to commodities such as energy and agricultural inputs. Another popular tilt has been toward gold, long regarded as a store of value and inflation hedge. But what about its less valuable cousin, silver?
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As it turns out, the shiny, ductile precious metal may provide investors with tangible diversification benefits. “Looking at the latest decade, silver shows a negative correlation to U.S. interest rates at -0.22 and a low correlation to the S&P 500 at 0.19,” says Roberta Caselli, commodities research associate at Global X ETFs.
According to Caselli, silver may also be worth watching now due to the gold-to-silver ratio. “This ratio tracks the amount of silver required to purchase one ounce of gold and can indicate when one is potentially cheaper than usual,” Caselli says. “Over the last 30 years, this ratio has averaged 65, but currently, it is near 88, possibly indicating that silver is undervalued relative to gold,” she says.
Another reason to favor silver over gold is due to the former’s industrial applications, which could provide long-term tailwinds. “The silver market is primarily influenced by three key drivers: industrial use, investment demand and supply levels,” says Sean August, CEO of The August Wealth Management Group. “When it comes to industrial-use cases, silver is a key input for electronics, solar panels and medical equipment,” August says.
Caselli agrees with August, noting: “Industrial usage of silver accounts for more than half of its annual demand, while gold has less than 10% of its demand driven by industrial use.” In a world dominated by technology, the bull case for silver rests on its importance in a variety of industrial applications. As the economy grows, so may the demand for silver.
For those looking to buy silver, there are alternatives to hoarding bullion in a safety deposit box or a home safe. “I really like silver exchange-traded funds, or ETFs, over other ways to hold silver,” says Anessa Custovic, chief investment officer at Cardinal Retirement Planning Inc. “You get the diversification benefits of holding silver without the headache of trying to purchase and store bullion,” Custovic says.
Investors bullish on silver can consider the following silver ETFs for their portfolios:
— abrdn Physical Silver Shares ETF (ticker: SIVR)
— iShares Silver Trust (SLV)
— Sprott Physical Silver Trust (PSLV)
— Global X Silver Miners ETF (SIL)
— ETFMG Prime Junior Silver ETF (SILJ)
— ProShares Ultra Silver (AGQ)
— ProShares UltraShort Silver (ZSL)
abrdn Physical Silver Shares ETF (SIVR)
“Physically backed silver ETFs like SIVR offer three significant advantages over other types of silver investments: transparency, liquidity and convenience,” August says. “These ETFs regularly disclose the amount of silver held, are easily traded on major exchanges, and grant exposure to silver prices without the need to store and insure bullion,” he says.
SIVR currently holds physically allocated silver bullion stored in secure vaults, which is audited twice a year. As of March 21, the ETF held 46,947 bars with its custodian, JPMorgan Chase & Co. (JPM), representing just about 45.7 million ounces of silver. The list of bars with their unique serial numbers can be found in a PDF on the ETF’s homepage. SIVR charges a 0.3% expense ratio.
iShares Silver Trust (SLV)
Another popular way of investing in silver is via SLV, which currently sports assets under management, or AUM, of just over $10 billion. Debuting in April 2006, this fund tracks the LBMA Silver Price index by holding over 459 million ounces of silver in trust as of March 17, 2023. The fund charges a sponsor fee of 0.5%, which is higher than SIVR.
Despite the higher fees, SLV could be a better fund for traders desiring high liquidity. Currently, the fund sports a median 30-day bid-ask spread of 0.05%, along with a 90-day average trading volume of over 17 million shares. For investors seeking enhanced exposure or the ability to hedge, SLV also offers a well-developed options chain to buy and sell calls and puts.
Sprott Physical Silver Trust (PSLV)
Technically, PSLV isn’t an ETF. Rather, it’s a closed-end fund, or CEF. Unlike ETFs, CEFs cannot create or redeem additional shares after their initial offering. As a result, excessive selling or buying pressure can occasionally cause their share price to trade at discounts or premiums relative to their net asset value, or NAV. Currently, PSLV is trading at a 3.2% discount to NAV.
Like the previous ETFs and funds on this list, PSLV also provides exposure to physically allocated silver bars stored with its custodian, the Royal Canadian Mint. Right now, the CEF holds a total of 171 million ounces. Investors owning sufficient shares of PSLV can even redeem their shares for a delivery of silver if they wish. PSLV charges a 0.6% expense ratio.
[Read: 5 of the Top Hedge Funds in 2022]
Global X Silver Miners ETF (SIL)
Silver miner stocks are an alternative to physically backed silver ETFs. “Silver mining stocks can offer indirect exposure to silver prices and tend to be leveraged plays on silver prices, owing to the fixed costs of extracting the metal,” Caselli says. “Unlike investing directly in silver, miners can expand production as profit margins grow, which can benefit their share prices,” she says.
However, picking individual silver miner stocks can open an investor up to company-specific risks. For a more diversified industry play, investors can buy SIL. This ETF tracks the Solactive Global Silver Miners Total Return Index, which holds a total of 34 silver miner stocks, with 62% from Canada. Currently, SIL has around $920 million in AUM and charges a 0.65% expense ratio.
ETFMG Prime Junior Silver ETF (SILJ)
Mining companies can be categorized as either senior or junior. Junior miners are small-cap companies that primarily engage in exploring and developing potential silver deposits. These companies secure funding with the goal of literally striking it rich. Due to the high-risk, high-reward nature of their activities, investing in junior miners can be highly volatile, much like with biotech stocks.
To diversify away from the risk of a single junior miner failing, investors can buy SILJ. This ETF tracks the Prime Junior Silver Miners & Explorers Index, which holds 61 junior silver mining stocks from around the world. Once again, Canadian stocks are a large focus in this ETF due to the country’s abundance of deposits. SILJ charges a 0.69% expense ratio.
ProShares Ultra Silver (AGQ)
Traders looking for magnified exposure to silver prices could trade options on SLV, or buy futures, but these approaches can be complicated and capital intensive. An alternative approach is via AGQ, which is a leveraged silver ETF. On a daily basis, AGQ will target a return two times that of the Bloomberg Silver Subindex by using derivatives, which include swaps and futures.
Leveraged ETFs like AGQ are primarily intended for short-term holding purposes. Because both returns and losses compound, holding AGQ for long periods of time can cause unpredictable results, especially during volatile markets. In addition, the ETF is pricey due to the use of derivatives, charging a much higher expense ratio of 0.95%.
ProShares UltraShort Silver (ZSL)
What if you’re bearish on this precious metal. Well, there’s an ETF for that, too.
“The price of silver has historically been very volatile and subject to periods of steep losses at times,” Custovic says. For investors looking to bet on falling silver prices, a leveraged inverse ETF like ZSL could be ideal. This ETF targets a daily return two times inverse that of the Bloomberg Silver Subindex. If the index falls by 1%, ZSL is expected to rise by 2%, and vice versa.
Like AGQ, ZSL is not intended to be held for long periods of time. The use of inverse exposure in particular can cause ZSL’s price to steadily decay as time goes on. In addition, like AGQ, ZSL is treated as a partnership for tax purposes, meaning that investors who hold it will need to fill out a Schedule K-1 come tax time to account for income, gains and losses. ZSL also charges a 0.95% expense ratio.
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What’s the Best Silver ETF to Buy? 7 Contenders originally appeared on usnews.com
Update 03/22/23: This story was published at an earlier date and has been updated with new information.
