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What's Behind the Rally in Silver ETFs?

Sweta Jaiswal, FRM

The year 2019 has seen impressive performance from silver so far. The ultra-popular silver ETF, iShares Silver Trust (SLV), has returned 18.3% year to date. For our investors, let’s take a sneak peek into what’s driving the upside (read: Precious Metal ETFs Gain From Tit-for-Tat Tariff Action).

Easing Global Monetary Policies

Analysts believe that falling interest rates drive demand for non-interest yielding investments like silver. It is worth noting here that the Federal Reserve has cut interest rate for the first time since 2008 at the FOMC meeting in July 2019. Now, the key interest rate stands in the 2.00-2.25% range following a cut of 25 basis points (bps). Analysts expect the Fed to cut rates further in 2019.

Moreover, on Aug 7, the Reserve Bank of India slashed repo rate for the fourth time this year as benign inflation gave the central bank a leeway to resort to easy money policy to boost an economy that is expanding at its slowest in nearly five years. Also, Beijing recently rolled out a key rate reform to lower funding costs for firms in order to lend support to China’s struggling economy. It is worth noting here that China’s industrial production growth in July has highly disappointed investors (read: 5 Sector ETFs Surviving August Turmoil).

Silver as a Store of Wealth

The prices of precious metals like silver rise when markets are in turmoil. Geo-political tensions and a decline in the stock market are currently driving demand for silver as a store of wealth. It is worth noting that the geo-political scenario is marked by escalating Sino-US trade tensions, Japan-South Korea issues pertaining to trade, Brexit uncertainty, Hong Kong unrest along with a plunge in Argentina’s currency and stock market (read: Trade War Gets Uglier: Here Are the ETF Winners & Losers).

Silver & Industrial Usage

As silver is used in a wide range of industrial applications, the demand for the metal is on the rise. The increase in demand can be attributed to growth in the global solar photovoltaics industry, rebound in global computer shipments as well as new sources of demand for sensors applied in OLED lighting.

Silver ETFs in Focus

Against this backdrop, let’s take a look at some silver ETFs:

iShares Silver Trust SLV

The fund seeks to match the spot price of silver, net of fees and expenses, and own silver bars to back the shares. The product offers diversification benefits for long-term investors, making silver the most attractive metal after gold. The fund is not a low-cost choice due to its 50 bps expense ratio. It has an AUM of $6.83 billion.

Aberdeen Standard Physical Silver Shares ETF SIVR

The fund provides a cost-effective way to invest in silver and is issued by the Aberdeen Standard Silver ETF Trust. It replicates the performance of the price of silver less the expenses of the Trust's operations. With an AUM of $398.1 million, the fund charges an expense ratio of 30 bps. It has returned 18.5% year to date.

VelocityShares 3x Long Silver ETN USLV

This note provides long exposure to three times the daily performance of the S&P GSCI Silver Index ER plus a daily accrual equal to the return that could be earned on a notional capital reinvestment at the 3-month U.S. Treasury rate less the daily investor fee. It has AUM of $351.2 million and charges 1.65% in fees. It has returned 54.7% in the year-to-date period (read: 5 Leveraged/Inverse ETFs Up 25% Plus at Halfway Q3).

ProShares Ultra Silver AGQ

The fund tracks daily investment results, before fees and expenses, that correspond to two times the daily performance of the Bloomberg Silver Subindex. It has AUM of $256.8 million and charges 95 bps in fees. It has returned 32.1% in the year-to-date period.

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iShares Silver Trust (SLV): ETF Research Reports
 
ProShares Ultra Silver (AGQ): ETF Research Reports
 
Aberdeen Standard Physical Silver Shares ETF (SIVR): ETF Research Reports
 
VelocityShares 3x Long Silver ETN linked to the S&P GSCI Silve (USLV): ETF Research Reports
 
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