SLV and GLD ETFs: a continuing opportunity?
Precious metals are commodities that offer a way to diversify investment portfolios since their performance is not directly tied to the performance of the equity and bond markets. There are several ways of gaining exposure to precious metals including direct ownership of physical gold, silver and other metals, owning shares of companies involved in mining metals, entering into futures contracts that are priced according to forward prices of these metals and buying units of precious metals mutual funds and ETFs. Precious metals ETFs and trusts such as iShares Silver Trust (SLV), SPDR Gold ETF (GLD), and others can offer a more liquid and easier approach to investing in precious metals at a lower cost than buying bullion, mutual funds, stocks in publicly traded companies involved in the exploration or production of these metals, or futures contracts.
Precious metals are also usually good inflation hedges due to their negative correlation to standard asset classes. ETFs in the asset class can offer an upside when the standard investment options such as stocks and bonds don’t look attractive due to macroeconomic factors and investors wish to resort to safe haven investments such as gold, silver and other precious metals. Gold, silver and precious metals are also favored when volatility in the market makes trading riskier. Precious metals ETFS offer greater liquidity through active trading than ownership in physical gold, silver, and other metals.
In the current environment where the Federal Reserve has flooded the market with cash, and confidence in the government is low, devaluation of the US dollar and hyperinflationary trends have been making precious metal ETFs attractive investment options.
Some of the more popular precious metals funds options are not ETFs but rather trusts. But since they offer similar liquidity at low expense ratios, they are worth a look. Trusts are not subject to the same regulatory requirements as mutual funds. Commodities also may pose higher risk than regular equity for investors.
The SPDR Gold ETF, GLD, was launched in the New York stock exchange in 2004 before trading in the NYSE Arca from 2007. It is the largest physically backed gold exchange traded fund. With $76 billion in assets under management and an expense ratio of 0.40%, it is up 23% year to date. The fund holds gold and sometimes cash and tracks the gold bullion spot price.
The Vaneck Vectors Junior Gold Miners ETF (GDXJ) was launched in 2009 and has an expense ratio of 0.54%. With $5.8 billion in assets under management, it has returned 26% year to date. It tracks the MVIS Global Junior Gold Miners Index which holds small and micro cap companies in the gold and silver mining industries. Its top holdings include Kinross Gold Corp, Gold Fields Ltd., Northern Star Resources Ltd., Pan American Silver Corp., and B2Gold Corp.
The VanEck Vectors Gold Miners Index (GDX) was launched in 2015 and has $757 million in assets under management. With an expense ratio of 0.53%, it tracks the NYSE Arca Gold Miners Index. It invests in public gold and silver mining companies and its top holdings include Newmont Corp., Barrick Gold Corp., Franco-Nevada Corp., Agnico Eagle Mines Ltd., and Wheaton Precious Metals Corp. It has returned 24% year to date.
The iShares Gold Trust (IAU) tracks the gold bullion and was launched in 2005. With $32 billion in assets under management, it has returned 23% year to date and has an expense ratio of 0.25%.
The iShares Gold Strategy ETF, IAUF, was launched in 2018 and has $22 million in assets under management. With an expense ratio of 0.25%, it has returned 19.8% year to date.
iShare’s Silver Trust (SLV) seeks to capture the price of silver. With over $13 billion in assets under management, it holds 17,411 tonnes of physical silver in its trust. Launched in 2006, it has returned 32% year to date. With an expense ratio of 0.50%, it tracks the silver bullion index.
The Aberdeen Physical Silver Shares ETF (SIVR) is much smaller that iShare’s Silver Trust (SLV) and has $652 million in assets under management and expense ratio of 0.30%. It tracks the silver bullion or the silver price in the spot market. It has returned 32% year to date.
The Invesco DB Silver Fund (DBS) was launched in 2007 with an expense ratio of 0.75%. With $26.5 million in assets under management, it tracks the DBIQ Optimum Yield Silver Index Excess Return. It has returned 31% year to date. The fund gives exposure to futures contracts on silver primarily through US Treasury
iShares’ MSCI Global Silver and Metals Miners ETF (SLVP) was launched in 2012 and has returned 40% year to date with an expense ratio of 0.39%. It invests in silver and metals exploration and mining companies and has $213 million in assets under management. It tracks the MSCI ACWI Select Silver Miners Investable Market Index. Its top holdings include Pan American Silver Corp, Hecla Mining Co., Newmont Corporation, Industrias Penoles SAB de CV and Eldorado Gold Corp.
ProShares Ultra Silver ETF (AGQ) offers a leveraged exposure and targets a 2x performance of the silver bullion. With 0.95% expense ratio, it has returned 34% year to date. Launched in 2008, it has $619 million in assets under management.
The ProShares Ultra Short Silver (ZSL) offers a negative correlation to silver targeting -2x performance of the Bloomberg Silver Subindex. Launched in 2008, it has $43 million in assets under management. As with all inverse ETFS, the risk is much higher and the holding period for this ETF is expected to be very short.
The E-Tracs UBS Bloomberg CMCI Silver ETN (USV) was launched in 2008 and seeks returns from a basket of silver futures contracts ranging from 3 months to three years. With 0.40% in expense ratio, it has $2.3 million in assets under management. It has returned 32% year to date and tracks the UBS Bloomberg CMCI Total Return Index.
The Aberdeen Standard Physical Paladium Shares ETF (PALL) was launched in 2010. With an expense ratio of 0.40%, it has $354 million in assets under management. It has returned 13% year to date and tracks the Palladium Bullion.
The Aberdeen Standard Platinum Shares (PPLT) was launched in 2010 with an expense ratio of 0.60%. It has 1 billion in assets under management and tracks the Platinum Bullion. The fund is down -12% for the year.
The Aberdeen Standard Physical Precious Metals Basket Shares ETF was launched in 2010 with an expense ratio of 0.60%. With $761 million in assets under management, it has returned 22% year to date. The fund tracks the Precious Metals Basket ETF Tracker.
With the current climate of uncertainty surrounding government, markets and currency, precious metals ETFs may continue to be good picks as investors seek to hedge against market volatility and inflation.
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