5 best silver ETFs for the market's 'runner-up' metal

Silver will always sit in gold's media shadow, but silver ETFs can help you enjoy runs of outperformance, like what we’ve seen so far this year.

  • By Kyle Woodley,
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Silver might never hold a candle to gold. But that doesn't mean you can't put it to good use in your portfolio.

Silver prices are up 36% so far in 2020, beating gold by a solid 10 percentage points, providing wind beneath the wings of silver exchange-traded funds (ETFs). But given the metal's second-class status, it's possible this is the first you've heard about its stellar outperformance.

How much do people look down upon silver? Olympians who win bronze medals tend to exhibit more happiness than the silver medalists sitting a step higher on the podium.

OK, silver is far more popular among investors than bronze, but it still doesn't come close to ol' Element 79. Consider that the iShares Silver Trust (SLV), the largest silver ETF on the market at $12.6 billion in assets under management, is a mere sixth of the size of the $75 billion SPDR Gold Shares (GLD). Fewer silver funds are vying for those assets, too. Still, there are several reasons to consider investing in silver, even if it's just a small allocation.

"While gold tends to get the most attention, silver, along with platinum and palladium, is also an important piece of a precious metals portfolio," says Charles Sizemore, principal of Sizemore Capital Management. "While silver also has more industrial uses, and is thus somewhat sensitive to the economic cycle, it has also been a viable inflation hedge over time."

And several tailwinds are conspiring to lift silver even higher in 2020.

"Silver's physical supply growth largely is a by-product of base-metals mining ... As mining capex for these base metals is reduced in response to weaker demand, silver's physical surplus will continue to contract," BCA Research analysts write in a recent note to clients. "On the demand side, a pick-up in industrial activity will benefit silver more than gold, given its relatively higher share of industrial consumption."

Here are five silver ETFs to buy if you're bullish on this often-snubbed metal.

Data is as of July 26.

iShares Silver Trust

  • Assets under management: $12.6 billion
  • Expenses: 0.50%, or $50 annually for every $10,000 invested

For most investors, ETFs are a much better way to play gold, silver and other precious metals than actually owning the metal itself.

Rather than find someone to buy bars or bullion from, then arrange delivery, then find somewhere safe to store the metal, then deal with the difficulty of finding a buyer when you're ready to unload it, ETFs such as SLV allow you to buy and sell silver with the click of a button in your brokerage account.

"Apart from being heavy and difficult to store, physical silver has also traded at a large premium to spot prices of late, due in large part to COVID-related hoarding," Sizemore says. "For exposure to silver, you might be better off buying an ETF or even playing the futures market."

That includes silver ETFs such as the iShares Silver Trust.

SLV, as mentioned before, is the largest silver ETF and the most popular publicly traded way to invest in silver.

The fund, which launched in 2006, currently holds nearly 560 million ounces of physical silver in its vaults, located in England and the U.S. Thus, SLV shares are a physically backed representation of the price of silver.

It's clearly not the same as holding physical silver, for those of you worried about truly apocalyptic scenarios. But for most long-term investors, it'll do.

Aberdeen Standard Physical Silver Shares ETF

  • Assets under management: $652.3 million
  • Expenses: 0.30%

While iShares' SLV is the oldest and largest silver ETF, it's not the cheapest.

Aberdeen Standard Physical Silver Shares ETF (SIVR) is a significantly less expensive physically backed silver ETF, with fees that are 20 basis points (a basis point is one one-hundredth of a percentage point) lower than iShares' offering.

There's precious little difference between SIVR and SLV. Both are backed by physical silver, though in Aberdeen's case, all the metal – in the form of silver bullion bars – is held in London vaults. SIVR shares represent an interest in that silver, minus the fund's expenses. And because the two silver ETFs track the same metal fairly closely, their charts tend to look almost identical – though SIVR has performed better over time thanks to its lower expenses.

So why does SLV hold so much more in assets than SIVR? Part of it is iShares' first-mover advantage, but SLV is also a much more liquid fund, trading 32 million shares daily versus a few hundred thousand for SIVR. While Aberdeen Standard's fund has decent enough liquidity for buy-and-holders, SLV's superior liquidity is much more attractive to agile traders looking to get precise entry and exit prices.

Global X Silver Miners ETF

  • Assets under management: $1.0 billion
  • Expenses: 0.66%

Global X Silver Miners ETF (SIL) differs from the first two ETFs in that it doesn't invest in silver metal – it invests in the companies that pull the metal out of the ground.

Here's what you need to know about mining stocks: Silver miners extract silver ore and process it – and if they can do that at a lower price than what they sell their silver for, they produce a profit. If you own silver mining stocks that have low production costs while silver prices are increasing, you're typically in a good place.

Global X Silver Miners ETF, which has been kicking around for more than a decade now, holds 27 companies involved in mining – some are actual miners, while others hold royalty or streaming interests in mining operations. Top holding Wheaton Precious Metals (WPM), for instance, currently boasts streaming agreements for 20 operating mines and nine development-stage projects. (Just note that like some of SIL's other holdings, it has exposure to gold, too, so it's not perfect silver-mining exposure.) No. 3 holding Pan American Silver (PAAS) is a direct miner with assets throughout the Americas.

Exposure in mining ETFs tends to be fairly concentrated, and SIL is no exception, with more than half of its assets concentrated in the fund's top five holdings. That includes a 22% weight in WPM alone.

Also understand that silver miners tend to be a bit "jumpier" than silver itself, so when the metal moves, SIL tends to move more aggressively in the same direction. Consider that while funds like SLV are up about 36% through late July 27 trading, SIL has gained 49%.

iShares MSCI Global Silver and Metals Miners ETF

  • Assets under management: $215.4 million
  • Expenses: 0.39%

The iShares MSCI Global Silver Miners ETF (SLVP) offers a somewhat different and less expensive option for investors interested in silver mining companies.

Like the SIL, the SLVP does have some interest in companies that mine not just silver, but gold and other metals. However, the fund's tracking index starts each rebalancing by targeting companies that primarily mine silver, then seeks out companies with gold and other metal interests. SLVP then limits the weight of large- and mid-cap gold companies to 5% of their market cap, then caps all issuer weights at 25%, then ensures all issuers with weights above 5% don't combine to exceed 50% of the fund's entire weight.

The result is a fund that holds Pan American Silver at nearly 18% of assets, and Hecla Mining (HL) at about 6%. Some gold-focused miners, such as Newmont (NEM) and Harmony Gold (HMY), have floated well above 5% of holdings recently thanks to their price gains. Wheaton Precious Metals is an SLVP holding, too, but at 2.6% of assets.

Again, it's a different approach toward what nonetheless ends up being imperfect silver-mining exposure. But it is 11 basis points cheaper than Global X's fund, if you value low expenses above all else.

ETFMG Prime Junior Silver Miners ETF

  • Assets under management: $425.2 million
  • Expenses: 0.69%

One last way to try to squeeze more juice out of silver ore is so-called junior miners.

Traditional miners are exactly what you picture in your head: A team of people and machinery built to extract silver ore from the earth.

But how do they know where to dig?

Junior silver miners help point production companies in the right direction. They're actually tasked with discovering silver deposits, determining how rich their resources are, and sometimes they actually help get mines up and running. But their involvement typically ends there.

It's a high-risk, high-reward business, and that's reflected in the boom-or-bust movement of their shares.

The ETFMG Prime Junior Silver Miners ETF (SILJ), which calls itself "the first and only ETF to target small cap silver miners," does do that … but it also invests heavily in traditional silver miners such as top holdings Pan American Silver and First Majestic Silver.

SILJ's modified free float market-cap weighting makes it so these types of miners carry a lot of heft in the fund, but it does hold some smaller players such as Canada Silver Cobalt Works and Kootenay Silver.

“We like the notion of investing in silver miners through the SILJ ETF as the gold-to-silver price ratio is attractive given historical values," says Karl Pettijohn, Managing Director, Wealth Management at Wedbush Securities. "As an industrial metal silver is also an attractive play given it’s many uses and increasing demand in solar panels, medical devices and cell phones.

"In addition, stimulus from Central Banks isn’t going away and low interest rates will be here for the foreseeable future which also plays into the demand for silver as an inflation hedge.”

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