Maybe you’ve looked at the silver-to-gold ratio, which measures how many ounces of silver it takes to buy one ounce of gold, and realized silver still looks undervalued compared to gold. Now you’re thinking about buying some. Time to head to your local precious-metals dealer, right?
Not so fast. Physical silver comes with immediate friction. Precious-metal dealers quote a buy price and a sell price, and the spread between the two can easily be a couple of percent. That means you lose money the moment you walk out the door. Then you need somewhere to store it. Digging a hole in the backyard doesn’t cut it, and a bank safety-deposit box introduces counterparty risk plus ongoing fees.
If you already have a brokerage account, you can avoid all of that by buying a silver exchange-traded product. These come in two flavours: exchange-traded funds (ETFs) and closed-end funds (CEFs). Here are two I like.
Source: Getty Images
Silver ETF
The iShares Silver Bullion ETF (TSX: SVR) tracks the price of silver and is hedged to the Canadian dollar, meaning currency fluctuations do not affect returns. Normally, silver trades in U.S. dollars, so hedging removes the USD/CAD noise and gives you purer exposure to metal prices.
The fund holds 129.9 tonnes of silver, or 4,174,997.8 ounces. With around 12.5 million units outstanding, each unit represents roughly 0.33 ounces of silver. SVR does not pay dividends, which makes it relatively tax-efficient, and it is eligible for all registered accounts, including the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and First Home Savings Account (FHSA).
The fee is the trade-off. SVR charges a 0.66% MER, which works out to about $66 in annual fees for every $10,000 invested.
Silver CEF
A cheaper alternative is the Sprott Physical Silver Trust (TSX: PSLV), which charges a 0.57% MER. The trust owns 204,605,154 ounces of silver, representing about $10.4 billion in assets. With 595,880,890 units outstanding, each unit is backed by roughly 0.34 ounces of silver.
The silver is stored at the Royal Canadian Mint and independently audited by KPMG. Holdings are fully allocated, meaning specific bars are held in the trust’s name rather than pooled with other clients.
However, this is not an ETF, and that introduces complexity. PSLV units can trade at a premium or discount to the fund’s underlying net asset value. Heavy demand will push the market price above NAV, while selling pressure can push it below. Discounts often persist for long periods. Right now, PSLV trades at roughly a 3.8% discount, so investors are not overpaying relative to the silver backing each unit.
