Furthermore, continued government dysfunction is decidedly bullish for the metal, as it can act as somewhat of a safe haven during troubled times. Should government problems hit investor confidence, silver could be a solid, and safe investment.
As a result, investors should reap huge benefits from this beaten down metal, which has temporarily been held back due to a slowdown in demand and weak global fundamentals. For those seeking to take advantage of the dips in the metal, an ETF approach could be a great idea as it offers up an extremely liquid way to target the space.
Types of Silver ETFs
Silver ETFs are divided in three categories: futures, physically backed ETFs and mining ETFs. Each of these will be detailed for investors looking to play in this increasingly important bullion market (see more in the Zacks ETF Center):
Physically Backed Silver ETFs
These funds offer simple and cost-efficient ways for investors seeking exposure to silver bullion. The ETFs seek to match the spot price of silver, net of fees and expenses and own silver bars to back the shares.
Each share represents a fractional interest in the trust. The two largest and the most popular silver ETFs in the space are iShares Silver Trust ETF (NYSEARCA:SLV) and ETFS Physical Silver Shares (NYSEARCA:SIVR).
With total assets of $7.4 billion, SLV tracks almost 100% the physical price of silver bullion measured in U.S. dollars, and kept in London under the custody of JPMorgan Chase Bank N.A. Each share represents about an ounce of silver at current prices. On the other hand, SIVR has AUM of $390 million and is backed by physical silver under the custody of HSBC Bank USA in London.
Though not a low-cost choice due to its 50 bps expense ratio, SLV has a lower bid/ask spread which could make total costs slightly less for this popular fund. SIVR charges only 30 bps in fees a year making it the best low-cost choice in the silver commodity space. While this is good, the bid/ask spread is probably wider than what investors see in the iShares product.
Both the products lost significantly in the first half of 2013 due to weak performance by the white metal. However, these are expected to rebound in the long term thanks to a strong outlook for industrial uses.
Recently, Credit Suisse launched Silver Shares Covered Call ETN (NYSEARCA:SLVO) that seeks to give investors a new way to play the precious metals market. These employ a covered call strategy which looks to provide investors with a great deal of income while still offering exposure to the metal.
This approach does cap risk, though big gains are unlikely with this ETN either. Still, the product has easily outperformed SLV since its inception, and if current trends hold, will sport a double-digit yield as well.
However, it is worth noting that this product has paltry volumes which could result in higher bid/ask spreads and increased trading costs. This makes the note a bit pricey as its expense ratio already comes in at an elevated level of 0.65%.
Still, in flat or down markets, a covered call strategy can be an interesting play, and one that can outperform ‘regular’ silver ETF investments (read: Time to Buy the Covered Call Silver and Gold ETFs?).