Weighing the Silver Plays

As gold hits record highs day after day, the performance of other precious metals such as silver and platinum have been largely overshadowed. With limited options available, platinum can be difficult to play, but silver can be accessed with a number of strong and stable exchange-traded instruments.

Silver is the most plentiful and least expensive of the precious metals. Unlike gold, silver is a necessary ingredient for a number of industries, including jewelry producers and photography, and it has several industrial uses as well. This demand will continue to rise as the global economy picks up.

Most investors looking for a pure play on silver have turned to the iShares Silver Trust (SLV - commentary - Trade Now). This massive fund boasts $5.5 billion in assets and has gained nearly 63% year to date. SLV is backed by physical silver held by the iShares Silver Trust, which according to the fund's Web site currently amounts to 9,252.02 tons. The fund is very liquid, with an average volume of 11.9 million shares trading hands each day.

The ETFS Physical Silver Shares (SIVR - commentary - Trade Now) is also backed by physical silver held in a vault by custodian HSBC. This fund, launched July 24, has gained 33.25% through Nov. 23. With $181.7 million in assets and an average trading volume of 180,000, it still has plenty of ground to cover before it catches up with SLV.

While SLV and SIVR provide investors with direct exposure to the metal, the PowerShares DB Silver Fund (DBS - commentary - Trade Now) tracks silver through the Deutsche Bank Liquid Commodity Index -- Optimum Yield Silver Excess Return. This index is made up of silver futures contracts and is intended to accurately reflect performance. DBS is even smaller than SIVR, with $106.3 million in assets and trades close to 17,500 shares on average. Year to date, this fund has gained 62%.

In examining these three options, I advise investors looking to add silver exposure to stick with the veteran SLV. This fund appears to not only have the best performance, but also boasts the best liquidity. Going into the future, I expect this fund to continue to be the most stable option of the three.

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At the time of publication, Dion had no positions in the stocks mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.