Silver ETF

Silver ETF - "Discovery of Gold in California" - ...
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Silver ETF products are an extremely popular way for mainstream investors to participate in silver.  An ETF, or Exchange Traded Fund, can be bought and sold just like any stock.  Options are available as well.  For folks who may have never purchased physical bullion before, or for those who do not care to do so, a silver ETF offers a distinct level of convenience.  For those who value safety and protection, on top of profit, it’s not the same as having metal in your possession.  Nevertheless, ETF investments are popular and easy to trade among the silver funds.

Silver ETF Products Tied To Bullion

The iShares Silver Trust is a widely known silver ETF that trades on the New York Stock Exchange.  Better known as SLV, this ETF is designed to follow the price movement of silver bullion.  As silver continues the bull market progression, participants can enjoy price appreciation in their SLV shares as well.

A somewhat lesser known silver ETF is SIVR.  SIVR is offered by ETF Securities, who also puts out the ETFS Physical Gold Shares (SGOL).  The ETFS Silver Trust is like most others, in that every share is intended to correspond to one ounce of silver metal.  This product began in 2009.  It has a smaller average daily trading volume than SLV.

While SIVR is an overall smaller fund compared to SLV, some find it to be superior based on other considerations.  SIVR uses HSBC in London to store the physical silver bullion that is warehoused to back the ETF.  This arrangement offers geographic diversification for American investors.  It also avoids the involvement of J.P Morgan Chase, which has come under attack.  Another interesting point is that SIVR is more restrictive on the use of sub-custodians for the warehoused metal.

On a more technical note, it’s worth pointing out the tracking error that is associated with silver ETF investments.  These products have expense ratios.  To pay expenses, silver bullion has to be sold to generate the cash to do so.  When this happens, obviously, the ETF necessarily loses its ability to wholly track silver prices.  After all, some of the metal, and hence the value of the fund, is gone.

Silver ETF Products Tied To Miners

In addition to products that are anchored to the silver bullion price, there are silver ETF options that are instead tethered to the companies that produce the metal.  Like the ETFs connected to bullion, these products also offer the ease of stock-like trading throughout the day.  You can purchase options, and even get real-time quotes too.

One such product is SIL.  SIL is the Global Silver Miner’s ETF, which is linked to the Solactive Global Silver Miner’s Index.  This index contains a couple dozen silver miners.  Commonly known large producers such as Pan American Silver and Silver Wheaton are typical holdings.  In fact, really there are only a few companies that make up approximately one-half of the Index.  The other half is spread among quite a few companies.  A lot of these are, of course, Canadian companies.  Still others are from various parts of the world.  Any would-be underperformers are tempered by the success of the winners.

Silver ETF Limitations

While the silver ETF products are certainly convenient, they do have some drawbacks.  There’s no question that they allow folks to tap the silver bull market without ever even really knowing what a one-ounce silver round looks like.  But there are costs that you’ll never incur when owning physical metal at home, such as those linked to the tracking error mentioned earlier.

As for ETFs that track a group of mining companies, such as those comprosing an index, there’s another price to pay on top of expense ratio fees.  The companies that make up the give index are usually fixed.  What this means is that, through the silver ETF, you are essentially invested in those given silver mining companies, come hell or high water.  By contrast, an investor who invests in the exact same companies individually would not incur this.  While they would have the commission associated with buying each of the companies, they would not have the annual fees.  Thus, there would be no holding cost.  There would only be the commission when the stock was sold.

Moreover, that person would have the flexibility of exiting just one, or two, of those companies with ease.  The positions they closed could be replaced with other qualified contenders, or else the funds could be piled into existing promising positions.  By contrast, an index-based ETF suffers from “regression towards the mean,” where extreme returns, in either direction, are tempered by the pool of companies.

Silver ETF Alternatives

There are a number of options for the investor who does not want to be forever tied to a set group of mining companies, and yet also wants to tap into the leverage of miners rather than settle for the relatively smaller moves in physical bullion.  One alternative is to simply choose your own stocks individually.  Of course, you could “cheat” and simply buy the companies in the given Index.  However, if you are not able to research and stay abreast of company developments, then you would never have any basis for doing anything other than continuing to hold all of those companies anyway.

Another option is for you to identify a trusted source to help guide you in your stock selection.  If you can locate an expert to assist you, this can be ideal.  The breadth of your investing can go well beyond the scope of the companies in any given index.  And you can hold all of these companies individually, so you can move in and out at will.

If that sounds like a bit more than you bargain for, you can always take a standardized “trusted adviser” route.  Specifically, there are mutual funds that focus on mining stocks, just like a silver ETF.  Here you have a collection of miners, but they are not pre-assembled by virtue of belonging to an index.  Quite the contrary, the group of companies have been assembled, indeed, hand-picked, by talented leadership managing the mutual fund.  Mutual funds can only be traded at the end of the day, after the Net Asset Value has been established.  And they don’t offer real-time quotes or options.  However, an investor looking for someone to make their stock picks for them probably will not care about this.

There are two excellent options that come to mind.  The U.S. Global Investors Gold and Precious Metals Fund, which trades under USERX, is a relatively conservative mutual fund that owns mining companies that are already in production.  Since they are producing precious metals at present, there is less risk than with companies that are at the exploration or development phase of the mining cycle.  The U.S. Global Investors Gold and Precious Metals Fund has an annual expense ratio of 1.5%.  It’s expensive, but the ability to have someone monitoring the holdings and pulling the plug on a losing proposition could be well worth it.  If you have the $5,000 minimum investment and want a hands-free option, it’s worth considering.

Another silver ETF alternative is designed to dovetail off USERX.  USERX is fine, but it lacks the exposure to junior resource companies.  The smaller exploration and development companies are potent in their ability to deliver extraordinary returns.  The counterpart to USERX designed to grant exposure to these companies is the U.S. Global Investors World Precious Minerals Fund.  Trading under the symbol UNWPX, you’ll find it has the same $5,000 minimum investment and the 1.5% expense ratio annually.  The same award-winning management is also available.  The big difference is in the holdings.  One-fifth of the fund’s assets are allocated to the smaller companies, while 80% remains in the larger producers.  Whichever suits your risk tolerance, both of these funds offer a great alternative for those looking for an option that will allow them to avoid the silver ETF limitation of being locked into a fixed pool of companies.

Silver ETF