NEW YORK (TheStreet) -- Although gold has received most of the press in recent weeks as economic struggles in Europe and China drive investors out of the market and into safety, the yellow metal is not the only precious metal investors can gain access to using ETFs and ETNs.
Silver serves a number of industrial purposes and therefore tends to perform well in times of economic strength. Still, investors have turned to this metal as a source of support in recent times of market uncertainty. Like the yellow metal, there are a number of silver ETFs currently available for investors to choose from.
Investors can gain exposure to physical silver using two ETFs:
iShares Silver Trust
ETFS Physical Silver Shares
. SLV, the elder of the two funds has been available to investors since 2006 and boasts over $5.5 billion in AUM. The fund is liquid, changing hands 11 million times per day.
SIVR became available in the second half of 2009. Since its launch, the fund has gained a following, changing hands over 150 thousand times per day and bringing in nearly $150 million. Like
ETFS Physical Swiss Gold Shares
, ETFS' SIVR has attempted to steal away market share from SLV by offering a lower expense ratio and holdng the metal in Switzerland as opposed to the U.S. SIVR charges investors 0.30% versus SLV's 0.50%.
Rather than tracking silver bullion, the
PowerShares DB Silver Fund
seeks to mimic movements in the price of silver using futures contracts. Similar to PowerShares' futures-based gold ETF,
PowerShares DB Gold Fund
, DBS utilizes an optimium-yield investing strategy which attempts to protect against falls when silver futures are in contango and take advantage of the benefits that come when futures are in backwardation.
Although it has done an adequate job tracking silver, investors have failed to show the same interest in DBS as they have in physically-backed ETF options. The fund's current three-month average trading volume is only slightly above 30,000.
Going forward, this fund may take heat as the CFTC continues to mull the possibility of instilling tighter position limits on futures-backed commodity ETFs.
ProShares manages two ETFs which allow investors to take leveraged bullish and bearish bets on silver. The
ProShares Ultra Silver ETF
ProShares UltraShort Silver ETF
deliver 2X the daily move in silver, boast ample volume and are appropriate for sophisticated investors looking for a short term play on this precious metal.
However, like DBS, AGQ and ZSL are currently in Washington's regulatory crosshairs as the SEC investigates the use of derivatives in ETFs.
The above figure shows the performance of the major silver ETFs (SIVR does not have a full year of history). Volatility is the enemy of the leveraged ETFs over long periods of time. Investors who held the 2X long AGQ for the past year would have earned a return similar to just holding SLV, while those in the 2X inverse ZSL would have lost about 2.5X the move in silver.
Because it is used extensively by the auto industry in the production of catalytic converters, platinum tends to have greater economic correlation, making it an attractive metal for bullish investors.
Although in the past a number of ETFs providers have attempted to launch products which track this white metal, there is only one instrument available that has managed to gain a foothold. The
ETFS Physical Platinum Shares
is a physically backed product meaning it tracks a physical stockpile of the metal held in a vault. Although it is a relatively young product, first appearing at the start of 2010, it has attracted a massive following.
The fund currently trades nearly 100 thousand shares per day and has gathered close to $600 million in assets.
There are also ETNs designed to allow investors to take bullish or bearish bets on the price of palladium by way of futures contracts.
iPath Dow Jones-UBS Platinum Total Return Subindex ETN
E-TRACS CMCI Long Platinum ETN
E-TRACS CMCI Short Platinum ETN
are all dangerously illiquid, however, and should be avoided.
Hailing from the same family of metals as platinum, palladium is also an important industry-linked precious metal and therefore also performs best in times of economic strength. However, because it is rarer than platinum, palladium is considered a more volatile precious metal and can therefore see wild swings during times of market uncertainty.
ETFS Physical Palladium Shares
was launched during the first days of 2010 along with a platinum-linked fund, PPLT. This marked the first time that ETF investors could gain any exposure to this metal. The timing of the launch was excellent. With markets around the world on the road to recovery and the global auto industry continuing to power higher, investors flocked to the product.
Since its launch, the palladium ETF has managed to wrangle in nearly $400 million in assets. Its average daily trading volume actually trumps that of PPLT, with over 200 thousand shares changing hands each day, although with less than one-third the price, its dollar volume is a bit less than that of PPLT.
Among PowerShares' line of futures backed commodity ETFs is the
PowerShares DB Precious Metals Fund
. This fund is unique from other precious metal ETFs because rather than track a single commodity, this fund splits its basket 80/20 across gold and silver futures contracts respectively.
DBP carries a 0.75% expense ratio and has managed to collect nearly $250 million in assets. The fund changes hands 90,000 times each day.
Investors wary of using futures to play precious metals can replicate DBP's strategy by applying an 80%/20% split in funds across their favorite gold and silver ETFs. If commission fees are reasonable the total cost may even be cheaper than holding DBP.
Physically backed ETFs such as SLV, PPLT and PALL are taxed as collectibles, with a 28% long-term capital gains rate.
Precious metal ETFs like DBP and DBS are taxed as futures, with a 60% long-term capital gains rate and a 40% short-term capital gains rate. Each investor in these funds is responsible for paying annual taxes and receives a Schedule K-1 form every year reporting his or her share of the fund's income.
Next week, I will examine the various precious metal mining ETFs and provide investors with a number of gold-focused mutual fund options.
At the time of publication, Dion Money Management owned PPLT.
Don Dion is president and founder of
, 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.