Back to top

Image: Bigstock

ETFs Ways to Tap the Rise in Silver Price

Read MoreHide Full Article

While gold lost its luster with the boom in the stock market, silver has become the most sought-after commodity in the precious metal space. The white metal gained nearly 24% in May, representing the biggest monthly jump in nearly a decade.

Below we have highlighted some reasons for the strong performance:

Economy Reopens

Most of the upside is driven by optimism over the pickup in industrial demand as the economy reopens after several months of coronavirus-driven shutdowns. With easing of lockdown measures, the economy started to recover as depicted by the latest rounds of data that will serve as a strong catalyst for silver demand. Notably, silver is used in a wide range of industrial applications. About 50% of the metal’s total demand comes from industrial applications, while 30% comes from jewelry/silverware/coins and medal manufacturers.

U.S. manufacturing activity rose for the first time since January while jobless claims fell for the first time during the pandemic in the week ended May 23. Additionally, stronger-than-expected consumer confidence and homebuilder confidence have led to some optimism (read: U.S. Manufacturing Points to a Recovery: 5 Winning ETF Areas). 

Hedging Instrument

The prospect of rising inflation triggered by unprecedented stimulus measures has compelled investors to turn to silver to hedge against near-record-low interest rates. Silver is regarded as a store of wealth and an alternative investment to risky assets during economic and political uncertainty. Global growth concerns, trade uncertainty, geopolitical tension and the upcoming election continue to weigh.

Massive Stimulus

Federal Reserve Chairman Jerome Powell said the central bank still has plenty of ammunition to rescue the economy from a deep slowdown, indicating a potential recovery in the second half of the year. The Fed would expand existing lending programs or start new ones if required. Since mid-March, the Fed has slashed interest rates to near zero and unveiled nine emergency lending programs, supporting corporate and municipal bond markets.

Lower rates will continue to weigh on the dollar against a basket of currencies, raising the precious metals’ attractiveness as these do not pay interest like fixed-income assets.

Industry Trends

The ongoing growth in the global solar PV industry, a rebound in global computer shipments, and new sources of demand for sensors used in IoT and OLED lighting will continue to provide a boost to silver demand.

Given the optimism and intense buying pressure on silver, investors have a long list of ETF options to watch out for. Below we have highlighted some of them. Each of these ETFs has a Zacks ETF Rank #3 (Hold).

iShares Silver Trust (SLV - Free Report)

The fund offers exposure to the day-to-day movement of the price of silver bullion. It is an ultra-popular silver ETF with AUM of $8.5 billion and heavy volume of 22.7 million shares a day. It charges 50 bps in fees per year from investors and has gained 20.9% in a month (read: Silver Beat Gold ETFs Past Month: Here's Why).

ETFS Physical Silver Shares (SIVR - Free Report)

This fund has AUM of $506.2 million and trades in moderate volume of around 306,000 shares per day on average. It tracks the performance of the price of silver less the Trust expenses. Expense ratio is 0.30%. SIVR is up 20.8% in a month.

Invesco DB Silver Fund (DBS - Free Report)

This product provides exposure to the silver futures market rather than spot market and tracks the DBIQ Optimum Yield Silver Index Excess Return index, before fees and expenses. It is unpopular and illiquid with AUM of $16.3 million and average daily volume of about 2,000 shares. DBS is a high-cost choice in the silver bullion space, charging investors 79 bps in fees per year. It has risen 22.3% in a month.

Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more gains than their bullion cousins in a rising metal market. Hence, silver mining ETFs are outperformers. We have highlighted them below:

Global X Silver Miners ETF (SIL - Free Report)

This product provides investors access to a broad range of silver mining companies by tracking the Solactive Global Silver Miners Total Return Index. It holds 28 stocks in its basket with double-digit concentration on the top three firms. Canadian firms take the largest share at 52.5%, while Cyprus, Mexico and South Korea round off the next three spots. The fund has managed assets worth $636.3 million and trades in a good volume of about 372,000 shares a day. It charges 66 bps in annual fees and has gained 9.4% in a month.

ETFMG Prime Junior Silver ETF (SILJ - Free Report)

SILJ provides direct exposure to the silver mining exploration and production industry by tracking the Prime Junior Silver Miners & Explorers Index. It holds 31 stocks in its basket with higher concentration on the top four firms. Canadian firms take the lion’s share at 62.6%, while the United States, Peru and Brazil take the remainder. The fund has managed assets worth $240.3 million and trades in good volume of nearly 659,000 shares a day. It charges 69 bps in annual fees and climbed 23.4% in a month (see: all the Materials ETFs here).

iShares MSCI Global Silver Miners ETF (SLVP - Free Report)

This fund follows the MSCI ACWI Select Silver Miners Investable Market Index, providing investors exposure to companies that derive the majority of revenues from silver exploration or metals mining. It holds 29 stocks in its basket with Canadian firms making up the lion’s share at 67.2%. The United States, South Africa and Mexico are some of the other top countries. SLVP has AUM of $131.6 million and average daily volume of more than 146,000 shares. It charges 39 bps in annual fees and has gained 12.4% in a month.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>