You're Long In The Wrong Silver Bullion ETF

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Includes: PSLV, SIVR, SLV
by: FX Metrix, LLC

Summary

Physically backed silver ETFs are all backed by the same underlying asset, yet these funds do not trade in lockstep.

Each silver ETF has its own pros and cons ranging from liquidity, to expense ratio, to vault location.

Additionally, we list the authorized participants for each silver ETF to further examine the underlying liquidity for each ETF.

We also included a tax tip at the end of the article for those long physically backed silver ETFs.

Background

There are three different choices when it comes to physically backed silver ETFs. This is what tempted us to do a side-by-side comparison to help investors and traders alike determine whether or not they are using the best physically backed silver ETFs for their needs.

While there is one significant thing in common with these three funds, the differences are all too often overlooked. Assuming one physically backed silver ETF is the same as another is a foolish mistake that could be costly over time. The three ETFs in order of AUM are as follows:

  1. iShares Silver Trust ETF (NYSEARCA:SLV)
  2. Sprott Physical Silver Trust ET (NYSEARCA:PSLV)
  3. ETFS Physical Silver ETF (NYSEARCA:SIVR)

SLV Chart

SLV data by YCharts

All three ETFs hold silver bullion and seek to track the performance of spot silver bullion. As shown above however, due to some minor differences between the three funds, they have each had a slightly different performance on a normalized (%) basis.

Odd Fund Out

As seen below, all three funds are trusts, however PSLV has one major difference from the other two funds. PSLV is a closed-end fund which means that there is no creation/redemption of shares (offering the potential for a higher return). Additionally, PSLV is the only physically backed silver fund that holds 100% allocated silver rather than the other two trusts. This means that all silver claimed by the fund is held by the fund's trust rather than potentially in transfer accounts between authorized participants etc.

Side-By-Side

SLV PSLV SIVR
Price Close 01/21/16: $13.46 $5.38 $13.87
AUM: $4.40 B $689.88 M $254.19 M
Fees: 0.50% 0.45% 0.30%
Average Daily Volume 5.37 M 448 K 94 K
Closed-End? No Yes No
100% Allocated No Yes No
Click to enlarge

Lowest Expense Ratio

For the silver bullion fund investors with a longer-term investment outlook, the high expense ratios of SLV and PSLV at 0.50% and 0.45% of AUM annually can really take away from potential gains. Those investors should be considering SIVR as a means of gaining physical exposure to silver bullion with a lower expense ratio of only 0.30%.

Lowest Bid-Ask Spread

For the physical silver ETF investors who tend to change their mind on trades often, or for those who just happen to be active traders in general, look to the silver ETF with the lowest bid-ask spread. While we could not retrieve the average bid-ask spread for PSLV, when comparing SLV with SIVR the choice is clear. SIVR with an average spread of .12% and SLV with an average spread of 0.07% makes SLV the ETF of choice for the active trader. With that being said, for those traders cutting transaction costs on their physical silver ETF trades, SIVR is available for commission free trading through Charles Schwab (NYSE:SCHW).

Highest Volume

SLV is by far the fund with the most liquidity, which is believable as it is the largest of the three funds by AUM. In addition, it has the most authorized participants out of the funds which is a further measure of theoretical liquidity for the funds. SLV is therefore the fund of choice for traders looking to move in and out of the physically backed siver ETF market with size. Trading big in either of the two other funds (most especially PSLV) could make waves and chase the price up quickly.

SLV Volume Chart

SLV Volume data by YCharts

Authorized Participants

We wanted to go one step further when determining which ETF was most liquid by comparing the final determinant of secondary market liquidity for these three funds. That final determinant is the creation/redemption mechanism through which authorized participants keep the fund trading in lockstep with the underlying value. The authorized participants for the funds are as follows:

ETF Authorized Participants
SLV

Barclays PLC (BCS), Citigroup (C), Credit Suisse Group AG (CS), Goldman Sachs (GS), JPMorgan Chase (NYSE:JPM), KCG Holdings (KCG), Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), Societe Generale (SCGLY), Royal Bank of Canada (RY), Bank of Nova Scotia (BNS), UBS (NYSE:UBS), Virtu Financial (VIRT)

PSLV N/A
SIVR CS, Deutsche Bank (NYSE:DB), GS, HSBC (NYSE:HSBC), JPM, BAC, SCGLY, BNS, UBS, VIRT
Click to enlarge

Geographic Differences

SLV stores the fund's silver bullion in London vaults and temporarily elsewhere. SIVR as well is more vague, storing silver in London vaults and "in other locations." There is the chance of silver being held in vaults elsewhere due to the fact that some of the silver holdings may at one time or another be found in unallocated accounts. This is compared to PSLV which stores its 100% allocated silver bullion bars in third party Canadian vaults.

Share Price

Last but not least, we wanted to mention share price because this comes into consideration for smaller traders/investors with limited capital trying to trade in round lots. When it comes to share price, smaller traders can look towards PSLV which currently trades below $6. Just be sure to check the premium/discount to NAV that PSLV is trading at before timing an investment.

Conclusion

We hope this was a useful and comprehensive guide to investing in physically backed silver bullion ETFs. We look forward to keeping investors informed on any new developments as we see them. Be sure to check out our similar article on physically backed gold ETFs. As promised, our tax tip can be found below.

~TAX TIP~

New York Silver Price Chart

New York Silver Price data by YCharts

For investors who find themselves hit by the falling silver prices the past few years or happen to find themselves in a silver ETF with too high of fees, be sure to note: The IRS wash sale rule prevents writing off losses on a position that you sell at a loss then repurchase within 30 days. However, if you retake the same sized silver position with a different ETF, this rule does not apply.

References

SLV ETF Profile

SLV Prospectus

SIVR ETF Profile

SIVR Prospectus

Sprott Silver Trust AUM

Sprott Silver Trust Fees

PSLV Prospectus

Schwab ETFs

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.