Not all that glitters involves gold these days. Silver too is experiencing a resurgence in popularity since the COVID-19 pandemic shuttered economies, eliciting massive stimulus programs from governments and central banks alike.
“There is a great alignment of stars for precious metals that is pretty unique right now,” says Fred Demers, director of multi-asset solutions at BMO Global Asset Management in Toronto.
“You don’t often get inflation fear at the same time as you get recession fear.”
With the money supply being expanded to prop up assets, stock market included, precious metals are considered an inflation hedge, he adds.
At the same time, these commodities are often decorrelated from stocks and bonds, providing additional diversification.
Gold is often the go-to asset in this respect, says David Kletz, Toronto-based portfolio manager with Forstrong Global Asset Management.
“But often trends supporting the gold market… carry over to silver.”
The price of silver has nearly doubled to around US$22 per ounce since its 2020 low around US$12 per ounce in mid-March, while gold has risen by about 20 per cent to around US$1,850 per ounce over the same period. Both precious metals were trading even higher in the summer, but have since slipped amid a stronger U.S. dollar.
Mr. Kletz cautions investing in assets that have experienced tremendous, recent price growth can be a perilous strategy.
Still, investors who still see a silver lining in the precious metal might consider getting exposure through exchange-traded funds (ETFs), including the following five options covering the spectrum of strategies:
MER (management expense ratio): 0.5 per cent
AUM (assets under management): US$14.6-billion
Year-to-date return (YTD): 38 per cent (Data from Morningstar as of Sept. 21 market close)
By AUM, SLV makes up the lion’s share of all ETFs trading the precious metal. Its popularity is due in part to SLV being the first silver ETF to launch (in 2006).
“And it has an easy ticker to remember, so people gravitate towards it,” explains Lois Gregson, a senior ETF specialist with FactSet Research Systems, based in St. Louis.
One benefit is SLV offers low-cost, liquid exposure to the daily price of silver bullion, without the complexity of investing in silver futures, Mr. Demers adds.
“You don’t have to manage a futures contract or worry about margining.”
Trading in New York, it does involve currency risk for Canadian investors. But iShares also has a Canadian dollar hedged silver ETF (ticker SVR) trading on the Toronto Stock Exchange, with a 0.67 per cent MER.
Although similar, “it is not a ‘wrap’ of SLV,” says Daniel Straus, director of ETFs research at National Bank of Canada Financial Markets.
Like the U.S. ETF, it invests in bullion, “but the TSX-listed ETF holds the silver bars at vaults at Scotiabank among other places.” In contrast, SLV’s reserves are in New York and London.
MER: 0.75 per cent
YTD return: 37.5 per cent
DBS offers exposure to silver futures contracts without the hassle of investors having to buy those contracts on their own.
“A lot of people who are just looking to trade on the daily silver price movements look at futures instead of the physical commodity,” Ms. Gregson says.
DBS indirectly offers that exposure to leveraged contract positions and along with it higher price volatility than the physical commodity.
That offers potentially higher returns for day-traders – albeit with greater risk to the downside, she adds.
MER: 1.39 per cent
YTD loss: 67 per cent
For those with a contrarian view of silver, inverse ETFs are a high-risk way to play that strategy.
Providing two times the inverse daily performance of front-month silver futures contracts, ZSL is another tool best left to day traders.
“If you’re trading it, you’re not holding it for very long,” Ms. Gregson says.
She says ZSL has a high MER for an ETF, but that’s not a concern in the short run.
“Traders don’t look at expense ratios very much because they don’t hold it for very long,” she says.
An alternative, she adds, is short selling silver ETFs, like SLV.
MER: 0.39 per cent
YTD return: 42.8 per cent
Holding a basket of silver mining stocks, SLVP offers a slightly different return profile than the commodity.
“The miners tend to act as a high beta on silver, meaning if silver goes up, the miners tend to go up more,” Mr. Kletz explains.
That argument has borne itself out in 2019 and so far this year. Additionally, many companies in the ETF pay modest dividends. As such, SLVP’s annual yield is about 1.2 per cent, which “is pretty minimal,” he says.
But for income-investors, it’s better than ETFs investing directly in the commodity paying no yield.
A downside is silver miners are often highly levered and, consequently, sensitive to rising interest rates. What’s more they often fall more in value than the commodity amid tough market conditions.
MER: 0.45 per cent (data from Bloomberg)
YTD return: 43.9 per cent
An exchange traded receipt, MNS is issued by the Royal Canadian Mint, with units providing ownership of silver bullion stored at the mint in Ottawa.
It offers investors a few unique qualities, Mr. Straus says.
Unlike other ETFs – which are open-ended allowing for more unit creation – MNS is essentially a closed-end fund with a limited number of units available.
As such, the investment’s unit price can differ from its NAV (net asset value) so MNS units can trade for more or less than its underlying silver bullion reserves.
“Let’s say MNS is trading at a discount from NAV, that may be a buying opportunity,” he adds.
With the lowest MER among Canadian exchange-traded products focused on silver, MNS also allows unit holders (with a minimum of 10,000 units) the opportunity to convert to actual bullion for pick up at the mint so long as they arrange for transport in “an armoured truck,” Mr. Straus says.