Sprott Physical Silver Trust Still Trades at Nearly 20% Premium

Apr.26.11 | About: Sprott Physical (PSLV)

Sprott Physical Silver Trust (NYSEARCA:PSLV), a closed-end fund that lets investors redeem large blocks of shares in exchange for delivery of silver bullion, is trading at a nearly 20% premium.

The $1 billion silver trust closed lower on Monday while trading volume jumped. It was down 5% in early trading Tuesday as silver prices retreated.

Sprott Physical Silver Trust often trades at a premium to net asset value (NAV). Closed-end funds can see large premiums and discounts, while exchange traded funds such as iShares Silver Trust (NYSEArca: SLV) have an arbitrage feature that tends to keep prices much more in line.

Sprott Physical Silver Trust traded at a premium of 18.2% on Monday, according to backer Sprott Asset Management LP of Canada.

The fund has an unusual tax benefit, The Wall Street Journal reported. Sprott recently filed to lift the sale restrictions on the 26% of the fund’s shares that the manager purchased for its own accounts when it opened last November, WSJ’s Jason Zweig wrote.

“Until now, those shares have been held off the market by chief executive Eric Sprott and several affiliates of the firm,” Zweig noted. “However, now that the registration has been filed with the SEC, they can be sold at any time, which would increase the number of the fund’s shares available to trade and could depress the price.”

Disclosure: Tom Lydon’s clients own SLV.