The Best ETFs for Investing in Silver (Canadian Investor Edition)

While gold has certainly captured the attention of Canadian investors—recently hitting an unprecedented high of $3,557.17 CAD per ounce—silver has also been making significant strides.

Recently, silver reached a notable 12-year high of $43.17 CAD per ounce, largely driven by economic stimulus in China, a country with substantial consumption of the metal.

Before getting swept up in the excitement of all-time highs, it's essential to consider a more strategic approach to investing in this precious asset.

Instead of purchasing physical bars or coins, ETFs offer a more accessible, cost-effective, and manageable way to invest in silver. These funds provide the benefits of silver investment without the complications of physical storage and security, making it simpler to trade and adjust your investment strategy.

For Canadian investors aiming to incorporate silver into their portfolios, silver ETFs can provide a streamlined and prudent solution. Let's explore why this is a smarter choice for gaining silver exposure and highlight some of the top silver ETFs available to Canadians.

Why buy a silver ETF?

Investing directly in physical silver presents several challenges for Canadian investors. When buying or selling silver, you face bid-ask spreads where dealers set their own buy and sell rates, potentially reducing the cost-effectiveness of your transactions.

Owning physical silver also involves significant storage and security considerations. Securing your silver investment typically requires a safe or a safety deposit box, and for larger holdings, insurance might be necessary to protect against loss or theft.

Additionally, the risk of counterfeiting adds another layer of complexity; for example, some silver bars are counterfeited by inserting a core of lead or tungsten and coating them with a thin layer of silver, deceiving even experienced buyers.

Conversely, investing in silver through ETFs streamlines the entire process. You can trade shares of silver ETFs as easily as any other stock, making it a convenient and efficient addition to your investment portfolio.

The best silver ETFs for Canadians

The silver ETF space in Canada has seen a significant shift with newer, lower-cost ETFs disrupting older legacy options, which is a positive development for investors.

Traditionally, many investors defaulted to the iShares Silver Bullion ETF (SIVR) and its non-currency hedged counterpart SIVR.C, but I've always found these options less appealing primarily due to their high expense ratio of 0.66%.

My preferred choice for Canadian investors is the Purpose Silver Bullion Fund (SBT). This fund is well-capitalized with $67 million in assets under management and offers a more affordable management expense ratio of 0.29%, which is significantly lower than that of SIVR/SIVR.C.

SBT invests in silver bullion that is held on a fully allocated and segregated basis in treasury vault facilities at a Canadian chartered bank. This means the silver is stored separately from the bank's own assets, ensuring additional security and compliance with investment standards.

Additionally, SBT is eligible for inclusion in all registered accounts, including Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), Registered Education Savings Plans (RESPs), and First Home Savings Accounts (FHSAs).

Why not buy other silver exchange-traded products?

When searching for silver investment options on your brokerage app, you might encounter two exchange-traded products that aren't typical ETFs: the Canadian Silver Reserves (MNS) and the Sprott Physical Silver Trust (PSLV).

Starting with MNS, this product is actually an exchange-traded receipt issued by the Royal Canadian Mint. Unlike ETFs, which pool investor funds to purchase assets, each MNS receipt represents a claim to a specific quantity of silver held by the Mint.

While this backing by a national mint adds a layer of security, one downside is that MNS isn't very liquid and often trades with a large spread between the buy and sell prices. However, it's relatively inexpensive with a 0.45% service fee and uniquely offers the option to redeem receipts for physical silver, provided you own a sufficient quantity.

Moving on to PSLV, this product is a closed-end trust, meaning it lacks the typical ETF feature of creation and redemption mechanisms that help align the trading price with the net asset value (NAV) of the underlying assets.

As a result, PSLV can trade at a significant premium or discount to its NAV, influenced by market supply and demand. Currently, it trades at a -3.59% discount to its NAV as of September 30. While this might seem like a buying opportunity, there's no guarantee the discount will narrow; historically, it has sometimes been even wider. PSLV also carries a higher expense ratio of 0.6%.