Silver ETF - Overview & Comparisons Of Silver ETFs

The proliferation of the ETF market coincided with a bull market in commodities including gold and silver. Silver ETFs that track the physical commodity as well as silver stocks have gained popularity as investors want a cost effective way to own silver. A Silver ETF is much more practical for most people than buying, insuring and storing physical silver especially when you consider the dealer spread. If you are expecting financial armeagedon and are storing up silver for survival then an ETF is not your answer, however if you are looking to hedge against inflation (devaluation of fiat currency) or just looking to trade the metals a good Silver ETF is a great investment vehicle.

Before we look at all the different investment options available for investing and trading silver, please note that silver is historically a very volatile commodity and is not suited for all investors. As you move along the risk curve toward silver miners and leveraged Silver ETFs the volatility can be much higher than most stock investors are comfortable with. Always make sure you understand the risks and read the prospectus before investing in an ETF.

One Tax Note: Under U.S. tax law an investment in a Silver ETF is treated as if you actually invested in silver and is subject to the same capital gains treatment as a collectible, not as other stocks. So capital gains would be calculated accordingly, please consult your tax advisor for more detailed information.

SLV - iShares Silver Trust ETF was the first Silver ETF to come to market and is by far the most liquid of the Silver ETFs. Due to it's market dominating position we will use it as the benchmark for comparisons of the other available products. Since it's inception on 4/21/06 the price performance of SLV has quite accurately reflected the performance of the Silver market less associated fees and expenses.

Each share of SLV represents approximately an ounce of silver and the expense ratio for SLV is .50% (50 basis points) per year which is slightly higher than similar Gold ETFs.

The trust is sponsored by BlackRock Asset Management with Bank Of NY Mellon as trustee and JP Morgan Chase as the custodian.  According to the prospectus, SLV is backed by silver, identified on the custodian’s books in allocated and unallocated accounts on behalf of the trust and held by the custodian in England and other locations that may be authorized in the future.

As with other ETF products this is not a good substitute for physical silver if you want to use it as protection against a financial meltdown. However, if your objective is to use precious metals to diversify your portfolio or protect against inflation SLV is a good choice.  ETFs are especially valuable if you wish to gain exposure to silver or gold in a retirement account which normally don't allow futures, options or physical bullion purchases.

SLV Performance Since Inception

 
This monthly chart begins on the first trading day for SLV .

SIVR - Physical Swiss Silver Shares ETF began trading on 7/24/09 and were intended to provide a higher degree of transparency into the actual metal backing the trust. According to the prospectus, each silver bar is properly segregated, recorded and the serial number is published daily on their web site. It seems they have gone the extra mile to address the transparency issue, there probably isn't much more that could be done without actually delivering the silver to the end customer.

SIVR is sponsored by ETF Securities USA LLC, Bank Of NY Mellon is the trustee and HSBC Bank USA is the custodian. The physical silver is held in London England on behalf of the trust.  Each SIVR share represents approximately 1 Ounce of silver and the annual management fee is .49% (49 basis points).

SIVR is very small compared to SLV and has a fraction of the trading volume, however the liquidity is still well above what is needed for actively trading or investing. Volume has grown steadily in the past year for all silver etfs including this one.

As you can see on the following chart the performance of SIVR has mirrored that of SLV. The primary reasons to choose SIVR over SLV would be the belief that there is greater transparency of silver ownership and the reduced annual expense ratio which is currently 20 basis points lower than SLV.

SIVR VS SLV Since Inception

 
Monthly chart begins on SIVR inception date 7/24/09.

DBS - PowerShares DB Silver Fund ETF  according to the PowerShares website DBS is based on the Deutsche Bank Liquid Commodity Index - Optimum Yield Silver Excess Return™ (the DB Silver Index) and is managed by DB Commodity Services LLC. The Index is a rules-based index composed of futures contracts on silver and is intended to reflect the performance of silver.

Since this is an index based fund it is priced different than SLV it is not based on 1 share equaling an ounce of silver. The annual management fee is .75% (75 basis points) with an estimated Futures Brokerage Commissions fee of an additional 4 basis points.

As you can see form the chart below DBS appears to have significantly underperformed SLV since inception.  Even if DBS performance equals SLV in the future, there is little incentive to purchase DBS considering the annual fees are higher, physical ownership is generally preferred to futures and DBS is much less liquid than the other two etfs.

DBS VS SLV Since Inception

Monthly chart begins on IAU inception date 1/21/05.

USV - E-TRACS Silver ETN  is another unleveraged product designed to track the performance of Silver.

According to the web site it seeks to track the price and performance yield, before fees and expenses, of the UBS Bloomberg CMCI Silver Total Return index. The fund is designed to be representative of the entire liquid forward curve of the silver contracts. The index measures the collateralized returns from a basket of silver futures contracts. It is comprised of the silver futures contracts included in the CMCI with five target maturities.  The annual expense is lower than DBS at .40% (40 Basis Points)

As you can see from the chart below USV performance has been consistant with the performance of SLV. However there is very little trading volume (around 1000 shares per day) making this an illiquid investment option compared to the other products.

USV Performance Since Inception VS SLV

Chart shows performance of USV since inception.

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SLV  |  SIVR  |  DBS  |  USV  |  AGQ  |  ZSL  |  SIL