Silver exchange-traded funds (ETFs) enable anyone to invest in the precious metal through a straightforward investment, positioning them to profit from the potential rise in the price of silver in the future.
A big catalyst for silver demand is the energy transition to a low-carbon economy. Silver is an excellent conductor of electricity. It's a key material used in manufacturing electric vehicles and solar panels. In addition, like other precious metals, silver has investment properties. Investors use it to diversify their portfolios and provide protection against inflation, geopolitical risks, and financial market downturns.
Silver ETFs allow investors to gain exposure to silver without owning the physical precious metal or trying to pick the best silver stock. Here's a closer look at the best silver-focused ETFs to consider.
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Best silver ETFs
About a dozen ETFs focus on silver. Half of them concentrate on providing direct exposure to the price of silver. The rest have a strategic focus on investing in companies involved in the silver mining industry. Here's a snapshot of the best silver ETFs to consider buying:
| Silver ETF | Expense Ratio | Assets Under Management (AUM) | ETF Description |
|---|---|---|---|
| iShares Silver Trust (NYSEMKT:SLV) | 0.50% | $12.1 billion | This ETF provides investors with exposure to physical silver. |
| Global X Silver Miners ETF (NYSEMKT:SIL) | 0.65% | $1.1 billion | This ETF owns a basket of silver mining stocks. |
| ETFMG Prime Junior Silver Miners Fund (NYSEMKT:SILJ) | 0.69% | $700 million | This ETF focuses on smaller cap silver mining stocks. |
iShares Silver Trust
The iShares Silver Trust is the largest ETF focused on silver. It offers an easy and low-cost way to invest in physical silver. The ETF owns physical silver bars stored in JPMorgan Chase (JPM 0.39%) bank vaults in New York and London. As of early 2023, the ETF held 481,638 bars of silver, totaling slightly more than 470 million total fine ounces.
The iShares Silver Trust ETF provides investors with exposure to the daily price movement of silver. It has done a solid job tracking silver's price over the long term:
Image source: Ycharts.
The iShares Silver Trust is a great investment vehicle for those who want direct exposure to physical silver without the costs, risks, and hassles of owning the metal. Physical silver helps investors with portfolio diversification and hedging against inflation. The ETF provides those benefits at a relatively low cost, given its reasonable ETF expense ratio of 0.5%, which could be cheaper than the expense of insuring and storing physical silver coins and bars.
Another benefit of using an ETF to invest in silver is that they are very liquid investments. Investors can buy and sell an ETF like any stock (and with zero commission at most online brokerages). These factors make the iShares Silver Trust an ideal way to invest in silver to directly capture the potential rise in its price.
Global X Silver Miners ETF
The Global X Silver Miners ETF provides investors with targeted exposure to silver mining stocks. It allows investors to participate in the potential upside of silver prices and production growth. Those features position the ETF to outperform the price of silver over the long term since the underlying mining companies can increase their profits faster than prices rise.
The Global X Silver Miners ETF held shares of 37 silver mining stocks as of early 2023. The ETF’s top 10 holdings were:
- Wheaton Precious Metals (WPM -0.43%): 26.9% of the fund's holdings.
- Korea Zinc: 9.5%.
- Pan American Silver (PAAS -1.3%): 8.1%.
- SSR Mining (SSRM -5.91%): 5.2%.
- Hecla Mining (HL -1.66%): 5.0%.
- Industrias Penol: 5%.
- Buenaventura (BVN 2.1%): 4.9%.
- Fresnillo (OTC:FNLPF): 4.9%
- First Majestic Silver (AG -0.44%): 3.3%.
- Mag Silver (NYSEMKTS:MAG): 3.3%.
The ETF provides investors with exposure to a broad array of silver companies. Wheaton Precious Metals leads the way with more than a quarter of the fund's holdings. The company focuses on investing in precious metals streams. It provides funding to help companies develop silver, gold, and other mines. In exchange, it can buy a set portion of the mine's future production at a fixed price. Wheaton Precious Metals' current streams entitle it to buy silver at $4.92 an ounce through 2027, enabling it to profit when silver is above that price. The streaming business model makes Wheaton Precious Metals less risky than most silver mining companies.
The rest of the ETF's holdings are global mining companies with meaningful silver production. They provide investors with exposure to the upside of silver prices and their ability to grow their profits faster as they increase production by developing and expanding mines while reducing costs. However, silver mining companies have some risks, including the potential for cost overruns, exposure to non-silver mines, debt, and other factors.
Given those factors, the ETF is best for investors seeking to potentially outperform silver prices over the long term. It provides broad exposure to about three dozen silver mining companies, making the ETF less risky than investing in a single silver miner that could underperform.
ETFMG Prime Junior Silver Miners Fund
The ETFMG Prime Junior Silver Miners Fund focuses on junior mining companies, which focus on exploring for new resources and developing mines. These companies have significant upside potential as they discover new resources and develop mines. However, the potential rewards also carry more risks. Mines are expensive to develop, often requiring smaller mining companies to take on lots of debt. Cost overruns and delays could cause significant underperformance.
The ETF held shares of 60 mining companies as of early 2023, led by the following 10:
- First Majestic Silver: 12.9%.
- Mag Silver: 9.9%.
- Capstone Copper (OTC:CSCCF): 6.7%.
- Hecla Mining: 6.1%.
- Pan American Silver: 5.0%.
- SSR Mining: 4.1%.
- Silvercrest Metals (SILV -2.1%): 3.9%
- Harmony Gold (HMY 0.9%): 3.6%
- Aya Gold & Silver (OTC:AYASF): 3.4%.
- Endeavour Silver (EXK -3.29%): 3.1%.
The ETF provides investors with broad exposure to smaller mining companies. It also had exposure to the following sub-sectors:
- Silver: 48.5%.
- Gold: 33.6%.
- Diversified metals & mining: 6.7%.
- Precious metals & minerals: 5.9%.
- Copper: 3.9%.
Although the focus is on silver, many of these companies also mine other metals, such as copper, and basic materials. For example, top holding First Majestic Silver gets about 51% of its revenue from silver and 49% of its revenue from gold. The company aims to become the world's biggest primary silver producer. First Majestic has several silver projects underway to expand its production. It also continues to explore for additional silver resources. However, since most silver mining companies like First Majestic also produce copper and other metals, they're not perfect investments for those seeking pure upside exposure to the silver price.
Meanwhile, the key difference between the ETFMG Prime Junior Silver Miners Fund and the Global X Silver Miners ETF is that the ETFMG fund concentrates on smaller mining companies, whose small scale makes them riskier. Many early-stage exploration companies need outside capital to help develop their mines, increasing the risk of cost overruns or high debt burdens affecting their investment returns.
Given the risks, the ETF is best for investors seeking a higher return potential. Investors are paying a reasonable fee for this upside opportunity, given the ETF's relatively modest expense ratio of 0.69%.
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Are silver ETFs right for you?
Silver ETFs allow anyone to easily add some silver market exposure to their portfolio. Physical silver ETFs are low-cost and highly liquid, making them potentially better options than owning coins and bars. Similarly, silver mining ETFs provide benefits over investing directly in a single silver mining company by spreading the risk over dozens of silver stocks. These factors make silver ETFs a great way to start investing in silver for people who desire exposure to the metal's investment properties or upside potential.
However, silver isn't for everyone. Investors need to firmly believe that its price will rise enough in the future to justify the risks of investing in the sector.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Matthew DiLallo has positions in JPMorgan Chase. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
