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iShares Silver Trust (ETF) (SLV), Sprott Physical Silver Trust ETV (PSLV): The Investor’s Guide to Silver ETFs

There are several good reasons to consider adding silver to your portfolio including:

  • Silver’s low correlation to other asset reduces risk in a long-term portfolio.
  • Silver acts as a store of wealth during times of high inflation and serves as a hedge against declines in the U.S. dollar.
  • Unlike gold, silver has many more industrial uses.

Fortunately for investors the advent of silver exchange traded funds, or ETFs, has made it easy to get exposure to the commodity without the hassle of physical delivery, storage, and insurance.

But not all silver ETFs are created equally. Investors need to understand how differences in these funds are structured can drastically affect returns.

Silver ETFs can be broken down into three categories: bullion, futures, and ETNs.

Bullion funds

Bullion funds hold silver directly in a vault.

Because the value of the fund is determined solely by the price of silver, bullion funds are the most accurate at replicating the price of the underlying commodity. However, because of how these funds are structured, they’re considered collectibles and gains are taxed at a maximum rate of 28%.

iShares Dow Jones US Home Const. (ETF) (NYSEARCA:ITB)

Today, there are three bullion ETFs available: iShares Silver Trust (ETF) (NYSEMKT:SLV): This fund is the most popular of all silver ETFs with $7.1 billion in assets under management. Because of the funds enormous size, iShares Silver Trust (ETF) (NYSEMKT:SLV) is the most liquid with the smallest bid-ask spread. This makes the fund an ideal candidate for short-term trading.

iShares Silver Trust (ETF) (NYSEMKT:SLV): This fund provide the same exposure to physical silver as iShares Silver Trust (ETF) (NYSEMKT:SLV) but costs 20 basis points less in annual management fees. For investors with a long-term time horizon this fund is an ideal choice.

The downside – this fund isn’t nearly as popular as iShares Silver Trust (ETF) (NYSEMKT:SLV) with only $360 million in assets. Thin trading means this fund has a wider bid-ask spread making it less suitable for frequent trading.

Sprott Physical Silver Trust ETV (NYSEMKT:PSLV) Buillion Trusts : Sprott Physical Silver Trust ETV (NYSEMKT:PSLV) is the newest edition to the silver ETF family. This fund has three key benefits 1) Silver bullion is stored in Canada providing with a degree of geographical diversification 2) Investors with sufficient holdings can redeem their silver bullion and 3) Some investors can qualify for a lower tax rate.

Clearly, the benefits of this fund are attractive to some members in the investment community. Since being released in 2010, the fund has quickly acquired over $1 billion in assets.