Matching the Gold Bug with a Silver-Based ETF

Under the rules of medieval heraldry, gold and silver were classed together as “metallic” colors, but could not be used on top of one another in a coat of arms. That relationship between the two is similar in the world of finance today, where gold and silver are both classified as “precious metals,” but are really two different metals with two different tendencies. This week’s exchange-traded fund (ETF) spotlight on the iShares Silver Trust (SLV) will be a deviation from the various gold funds I’ve been featuring but it still will be within my current theme of examining promising precious metals ETFs.

SLV was founded in 2006 and it is not your standard ETF. The trust is not an investment company registered under the Investment Company Act of 1940 nor is it a commodity pool under the Commodity Exchange Act. Shares of the trust are subject to the same requirements as a mutual fund. SLV’s purpose is, generally speaking, to reflect the price of silver owned by the trust at that time and give investors exposure to the day-to-day movement of the price of silver bullion.

Like with several of the gold funds I have recently highlighted, rather than forcing shareholders to physically own a hunk of precious metal, SLV aims to give its investors easier, more cost-effective access to physical silver. That is because the expenses involved in an investment in physical silver are dispersed among all holders of iShares rather than a single individual.

One rather unique feature of SLV is that the Trust’s shares are not redeemable except in large aggregate units called “baskets.” These baskets are created when silver is deposited into the trust, and SLV then will sell silver to cover the redemption price of these baskets. Only authorized brokers who have entered into a contract with the sponsor and trustee of the trust can purchase or redeem baskets, but shares of SLV can be bought or sold through any brokerage account.

SLV’s share price has traded in a wide arc over the last year, with its high and low points approximately matching the strong and weak times in the market. Year to date, SLV has risen close to 20% on the recent surge that has taken hold of precious metals and related sectors. The trust does not offer a dividend, but it has a modest expense ratio of 0.5% and about $5 billion in assets. SLV is one of the largest precious metals ETFs out there.

View the current price, volume, performance and top 10 holdings of SLV at ETFU.com.

SLV is 100% invested in silver, similar to many ETFs that are aligned with precious metals. However, it lacks the diversified holdings of traditional exchange-traded funds.

Usually, gold and gold stocks receive mainstream attention in the precious metals sector, but silver is an alternative investment. If you want to consider an investment in this “secondary” precious metal, then the iShares Silver Trust ETF (SLV) might be a good place to start.

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As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.