Investors in the iShares Silver Trust (NYSEARCA:SLV) currently have a rare opportunity to switch over to what I believe to be a superior fund without the massive historic premium, the Sprott Physical Silver Trust (NYSEARCA:PSLV). PSLV's premium to the spot price of silver has been as high as 35%, but due to the Sprott's secondary offering and a general slowdown in the silver market as a result of an extended period of consolidation PSLV is trading at a mere 4.95% premium to spot silver.
Current and Historic PSLV Premium:
Why Choose PSLV vs. SLV:
Taxes: PSLV has a more efficient tax structure for US investors, which allows investors to pay the long term capital gains tax of 15% vs. the collectibles rate of 28% that investors in SLV have to pay. The potential tax savings alone justifies switching from SLV to PSLV.
Redemption: PSLV allows investors to redeem their physical silver on a monthly basis while SLV does not offer any redemption options for investors.
Security: PSLV is stored by the Royal Canadian Mint, which acts as an agent for the Canadian government, and is responsible for the loss or damage of any of the trust's bullion. SLV's custodian is JP Morgan Chase, and per the prospectus; "The custodian is responsible to the trust for loss or damage to the trust's silver only under limited circumstances." After MF Global many investors are legitimately concerned about counterparty risk. Sprott's trust provides investors with what is essentially a government backed guarantee.
Expenses: PSLV has a lower expense ratio of 45bps vs. SLV's 50bps.
Upside Potential: Since PSLV is a closed-end fund it can, and does, trade at a premium to NAV. If interest in the silver market increases, or more concerns over SLV arise, investors have the opportunity to not only benefit from the price appreciation of silver, but also the potential increase in premium PSLV trades at. An interesting potential idea for more advanced traders would be to buy PSLV and short SLV, which would eliminate the volatility of silver prices, but still allow investors a significant gain if the historic premium PSLV has commanded returns.
Disclosure: I am long SLV out of the money call options.