The Advantages of Investing in Silver Using ETFs
Silver has worldwide appeal to investors due to its status as a store of value and because it is used in a variety of commercial and industrial applications. Investors can invest in silver by buying physical silver like silver bars or coins, or they can gain exposure through ETFs, which present several advantages for investors. Here’s why silver ETFs are a great way to gain exposure to the precious metal, as well as an overview of three of the top silver ETFs for investors to consider.
Why Silver?
Silver has been valued as a precious metal for centuries. Like gold, silver can be used as a store of value and a hedge against inflation, as it is a finite resource. Investing in silver gives investors diversification beyond traditional asset classes like stocks and bonds, and its returns are historically less correlated with the broader market.
However, silver has many more industrial uses than gold, and demand for silver comes from industries like semiconductors, solar panels, and medical devices. Furthermore, silver is more affordable than gold, at a price of about $23 per ounce versus over $1,900 for an ounce of gold, making it a more accessible onramp into precious metals for many investors.
Benefits of Investing in Silver Through ETFs
If you want to gain exposure to silver, doing so through ETFs is advantageous for many reasons. First and foremost, buying a silver ETF is convenient. It’s no different than buying a stock or an ETF in your brokerage account. Silver ETFs also offer ample liquidity. You can buy or sell your silver ETF any time during market hours with the click of a button — no trip to a precious metals or coin dealer is needed.
Furthermore, when buying silver bars or silver coins at a dealer or online, one often has to pay a premium or markup above the spot price of the commodity for it. Additionally, buying physical silver can come with additional costs related to storing and insuring it. While silver ETFs charge an expense ratio, when taking all of these costs into account, ETFs can often be a comparatively cheaper way for investors to buy silver.
With this in mind, here are three of the top options for investors who want to add silver to their portfolios using ETFs.
iShares Silver Trust (NYSEARCA:SLV)
Launched in 2006, the iShares Silver Trust is the oldest and largest silver ETF in the market (with $9.7 billion in assets under management), making it a natural starting point for investors looking to gain exposure to silver.
SLV holds over 450,000 silver bars, or a total of 441,547,750,400 fine ounces, and stores them in three different vaults owned by JPMorgan (NYSE:JPM) in New York and London. SLV is a transparent investment vehicle, as investors can check out its updated silver holdings for themselves on a daily basis.
SLV charges an expense ratio of 0.50%, meaning that an investor allocating $10,000 into the fund would pay $50 in fees over the course of the year.
abrdn Silver Physical Shares ETF (NYSEARCA:SIVR)
The abrdn Silver Physical Shares ETF is similar to SLV, offering investors direct exposure to physical silver. SIVR is smaller than SLV, with just under $1 billion in assets under management, but it is the second-largest silver ETF.
SIVR stores its silver bars at JPMorgan’s vault in London. It currently owns 46,392 silver bars, good for over 45,000,000 fine ounces. Like SLV, SIVR is transparent and gives an updated account of its holdings on a daily basis.
In many ways, SIVR and SLV are very similar. However, the key advantage of SIVR over SLV is that it is quite a bit cheaper, with an expense ratio of 0.30%. This means that an individual investing $10,000 into SIVR will pay a comparatively cheaper $30 in fees during year one.
Global X Silver Miners ETF (NYSEARCA:SIL)
Another way to gain exposure to silver is by investing in silver miners through an ETF like the Global X Silver Miners ETF. Rather than investing directly in physical silver, SIL invests in the companies involved in producing the precious metal, primarily miners.
Note that the top holding, Wheaton Precious Metals (NYSE:WPM), isn’t a miner, but it’s a streaming company that invests in silver mining projects in exchange for the right to purchase production from these projects at a predetermined price. WPM then profits by selling this silver later at the market rate.
Investing in miners is a bit different than investing directly in physical silver, as it brings in additional risks and rewards. On the one hand, this brings in additional complexity, as you now introduce the company-specific risks of the mining companies themselves, such as operational risks and the potential for political risks in the countries in which the individual companies operate.
However, on the plus side, silver miner stocks can have more leverage to the upside because they can ramp up production when the price of silver rises.
SIL is the largest silver miner ETF, with $800 million in assets under management. It holds 34 stocks, and its top 10 holdings make up 76.0% of the fund. Below, you can take a look at SIL’s top 10 holdings using TipRanks’ holdings tool.
A major benefit of investing in silver miners through an ETF like SIL is that it lowers risk through diversification. For example, investing in the stock of a single silver miner could be risky if the company has operational problems at a mine or faces political pressure from the country in which it operates.
However, SIL is a bit more expensive than its two physical silver counterparts mentioned above, with an expense ratio of 0.65%. This means that investors putting $10,000 into SIL will pay $65 during their first year of investing.
Is SIL Stock a Buy, According to Analysts?
On TipRanks, SIL earns a Moderate Buy consensus rating based on 19 Buys, 15 Holds, and zero Sell ratings assigned in the past three months. The average SIL stock price target of $32.58 implies 31.4% upside potential.
Investor Takeaway
Silver boasts widespread investment appeal, functioning both as a precious metal, which can serve as a store of value and an inflation hedge, and as a versatile industrial metal. Investing in silver via ETFs offers investors many advantages, primarily convenience, liquidity, and cost-effectiveness.
The SLV and SIVR ETFs are both simple and effective ways that investors can gain direct and undiluted exposure to physical silver. Both ETFs are transparent and liquid. Of the two, SIVR has an edge over SLV because of its lower expense ratio, but both are viable options for investors.
SIL is an interesting choice for investors who want to gain more torque to the upside (and downside) of silver prices, although it invests in silver miners instead of in physical silver itself, making it a more complex way to invest in silver. SIL is also a bit more expensive than SLV or SIVR based on its higher expense ratio.
In conclusion, all three of these ETFs are useful ways for investors to gain exposure to silver, which has been seen as a store of value for many years and should continue to appeal to investors in the future due to the factors discussed above.
