WHAT IS 'Silver ETF'

A silver exchanged-traded fund, or ETF, invests primarily in raw silver assets, which are held in a trust by the fund manager or custodian. Typically, silver ETFs are established as grantor trusts, where each share of the ETF represents the specific right to a specific amount of silver, measured in ounces. Silver ETFs aim to track the spot price of silver on the open market as closely as possible.The first to market was the iShares Silver Trust, managed by Barclays Global Investors and introduced in 2006.

BREAKING DOWN 'Silver ETF'

Silver ETFs, alongside with gold ETFs, were introduced in the early 2000s, opening up an attractive investment vehicle for individual and institutional investors. Precious metals like silver are seen as a hedge against inflation. ETFs allow for greater liquidity than holding the metal itself and are easier for individuals to access than the futures markets.

Silver ETFs held in taxable accounts are subject to a higher long-term capital gains rate on any holdings of more than one year. Because silver ETFs are considered to be investments in the raw metal itself, gains are assessed on silver as a collectible and are subject to a 28% long-term capital-gains rate. Silver ETFs held in individual retirement accounts are not subject to this higher gains tax, having been given a special clearance by the Internal Revenue Service.

Silver ETFs as a means of diversification

Market volatility tends to increase investor attention on the importance of diversifying their investment portfolios to weather market turbulence. Amid volatility, precious metals like silver tend to become more attractive to investors, given their haven status. 

An argument in favor of adding layers of diversification to a portfolio with commodities, such as silver, is that it is in high demand in many different industries, including consumer electronics, automobile manufacturing, solar energy and housing, to name a few. 

There are several silver and silver-mining funds that do a good job of tracking the metal's gains and losses. Examples of popular silver-related ETFs include the iShares MSCI Global Silver Miners ETFs, or SLVP, aims to track the MSCI ACWI Select Silver Miners Investable Market Index, and it is closely correlated to the price of silver.

iShares Silver Trust, or SLV, is not a typical ETF. As the prospectus notes, "The assets of the Trust consist primarily of silver held by a custodian on behalf of the Trust," which means that the fund will purely reflect the price movements of silver. Investors purchase shares in the physical silver held by the trust, and the fund charges a 0.50% annual sponsor fee to hold the silver.

Global X Silver Miners ETF, or SIL, offers a different take on silver. This ETF tracks an index of global silver mining companies. With average daily volumes of approximately $4 million, SIL has significant liquidity to reassure investors looking to enter this relatively volatile market. 

RELATED TERMS
  1. Mint Ratio

    The mint ratio, or gold/silver ratio, is the price of an ounce ...
  2. Silver Thursday

    A steep fall in the price of silver that occurred on Thursday ...
  3. ETF Futures and Options

    ETF Futures and Options are derivative products built on existing ...
  4. Actively Managed ETF

    An active managed ETF is a form of exchange-traded fund that ...
  5. Services Sector ETF

    Exchange-traded funds (ETFs) that invest in either the consumer ...
  6. ETF Sponsor

    The company or financial institution which creates and administers ...
Related Articles
  1. Investing

    The world's top 5 silver mining companies

    Discover the five top silver mining stocks, which can be seen as low-cost alternatives to stocks in volatile markets.
  2. Investing

    A Silver Primer

    Find out what affects the price of silver, the types of investments that can be made and the methods in which it is traded.
  3. Investing

    AGQ vs. USLV: Comparing Leveraged Silver ETFs

    Explore the financial profile of two leveraged silver ETFs, and learn about what types of investors may be interested in these funds.
  4. Trading

    How to Trade the Breakout in Silver (SLV, EXK)

    Many traders are turning to the silver market given the strong surge in momentum. While all eyes are on the underlying commodity or large-cap miners, strategic traders are turning to small and ...
  5. Investing

    Is Silver The New Gold?

    With silver on the move, gold could quickly become yesterday's news.
  6. Investing

    Why Gold and Silver Prices are Diverging (GLD, SLV)

    Gold and silver prices are seeing a big performance divergence in 2016. Here's why.
  7. Investing

    Silver Dips on Brexit Plan, U.S. Economy (USLV)

    Silver prices dipped on British leaders' EU exit schedule and on data showing a weakening U.S. economy
  8. Investing

    Is This The Right Way To Invest In Silver?

    Silver might still be a good long-term bet, but if you’re going to make it, then you need to make sure you play it correctly.
  9. Investing

    Do Small Investors Move The Market?

    As trading technology improves access, individual investors may have more of a say in the direction of the market.
  10. Investing

    Will Silver Recover in 2016? (SLV, GLD, JJC)

    The end of the silver downtrend is likely to coincide with similar recoveries in gold, iron and copper.
RELATED FAQS
  1. What are the most common ETFs that track the metals and mining sector?

    Discover investment opportunities with ETFs that invest in physical precious and base metals and miners such as gold, silver, ... Read Answer >>
  2. Do ETFs pay capital gains?

    Learn about exchange-traded funds (ETFs), which can generate capital gains for their shareholders due to occasional and substantial ... Read Answer >>
Hot Definitions
  1. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  2. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  3. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  4. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  5. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  6. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
Trading Center