The Best ETFs for Investing in Silver

Silver has been catching the attention of investors, recently hitting a 12-year high of $32.1 per ounce in October, driven largely by its industrial demand and economic stimulus from China.

But before you jump in on the excitement fueled by rising prices, it’s worth considering a more thoughtful way to invest in this precious metal other than driving down to Costco and buying a 10-ounce bar.

Instead of buying physical silver, which comes with the challenges of storage and security, silver ETFs offer a more accessible and cost-effective alternative. These funds make it easier to trade and manage silver investments without the complexities of handling the physical asset.

If you’re thinking about adding silver to your portfolio, silver ETFs might be the perfect option. Let’s explore why this make sense and take a closer look at some of the top silver ETFs currently available.

Why buy a silver ETF?

Silver ETFs, which are technically structured as grantor trusts, hold physical silver bullion for investors. This structure is slightly different from traditional ETFs but operates similarly, allowing investors to purchase shares that represent a portion of the physical silver held by the trust.

Direct investment in physical silver can be challenging due to the bid-ask spreads set by dealers, which can significantly affect transaction costs.

Additionally, owning physical silver requires secure storage solutions like safes or safety deposit boxes and potentially insurance, especially for larger quantities.

The risk of counterfeiting is another concern, especially with larger bars that may be filled with lead or tungsten cores to mimic the weight of pure silver, misleading unwary buyers.

In contrast, investing in silver through ETFs simplifies the investment process. You can buy and sell shares just like stocks, offering a straightforward way to add silver to your investment portfolio.

My favorite silver ETFs

There's a lot of competition in the silver ETF space, and while there's no definitive "best silver ETF" for everyone, there are several that cater to different objectives and investing styles.

First up is the iShares Silver Trust (SLV), a large and reputable option with just shy of $15 billion in assets under management, corresponding to 14,508 tonnes of silver in trust. It tracks the LBMA Silver Price and offers great liquidity with a low 0.04% 30-day median bid-ask spread. However, a downside is its sponsor fee, which at 0.5% is on the higher end.

A cheaper alternative is the abrdn Physical Silver Shares ETF (SIVR). This ETF holds silver in a London vault inspected twice per annum, once at random, ensuring high levels of transparency and security. With a lower expense ratio of 0.3%, SIVR is a more cost-effective option. abrdn periodically publishes vault inspection letters and bar lists online, enhancing transparency for investors.

Silver ETFs I would personally avoid

I'm not going to name specific ETFs to avoid, but for those seeking silver exposure, I recommend sticking to physically backed grantor trusts. It's wise to steer clear of more exotic products which can complicate what should be a straightforward investment.

Consider silver futures ETFs, for instance. These invest in futures contracts to mimic the performance of silver. However, they come with several drawbacks: dealing with K-1 forms at tax time, potentially higher fees, capital gains distributions, and tracking errors due to contango. Contango occurs when future prices are higher than spot prices, leading to losses when futures contracts are rolled over at higher prices.

Silver miner ETFs also present challenges. While correlated with silver prices, they hold equities and hence carry market risk. Investing in silver miners can be seen as a leveraged play on silver prices because miners' profitability may be disproportionately affected by price changes. When silver prices rise, miners' profits can surge, but when prices fall, profits may plummet.

For similar reasons, I would also avoid leveraged and inverse silver ETFs that aim to deliver 2x, 3x, or -1x the daily price return of silver. These products often have high fees and suffer from volatility decay, making them more suitable for short-term trading than long-term investing. Their performance can deviate significantly from the expected return over longer periods, primarily due to the effects of daily rebalancing, which compounds losses in volatile conditions.

Therefore, if your primary goal is to invest in silver as an asset uncorrelated with stocks, opt for ETFs that hold physical silver. This provides a more direct and less volatile exposure to the precious metal, avoiding the complexities and risks associated with other types of silver investment products.