Gold may be what millions of investors are talking about, but silver exchange traded funds (ETFs) are the dark horse in this race. But how do the two physically-backed silver ETF options compare?

Like physically-backed gold ETFs, silver ETFs have one basic thing in common: they own silver bars in secure vaults. After that, though, they differ on a few fronts. We caught up with iShares and ETF Securities to talk about the differences between their funds.

iShares Silver Trust (NYSEArca: SLV)

  • Assets: $12.8 billion
  • Expense ratio: 0.50%
  • Inception date: April 21, 2006
  • Where is the silver physically kept? The silver bars are kept in London
  • Who is the custodian?*: JP Morgan in London
  • How was the custodian chosen? SLV runs its operations completely out of London, a city that iShares‘ Director of Channel Marketing Kevin Feldman says has historically been the center of the silver market.
  • Are there any sub-custodians**? Yes, says Feldman. JP Morgan has the option to employ sub-custodians, and if there are any, iShares discloses them in their silver holdings report.
  • How is the silver moved in and out of the vault? Here comes the reason for the sub-custodians: Feldman says that there’s a lot of silver owned by investors right now, and moving that quantity would be expensive. To keep costs in the fund low and the efficiency high, the ownership of silver can be transferred as part of the process of “moving” the bars, although they remain in the same location. JP Morgan, a leading custodian of silver, maintains a large quantity of unallocated silver in their London vaults. As additional shares are created in the Trust, the silver in the vault is simply allocated to the Trust’s account.  JP Morgan monitors their unallocated stockpile to be certain that sufficient metal is available to handle a largest influx into the fund.
  • What is the quality of the silver in the trust***? The minimum standard for silver in the trust is 99.99% pure, which is the purity standard set by the LBMA. All silver coming into the trust is certified at that quality.
  • Who conducts the vault audits? Inspectorate, which is the same independent auditor used by other physically-backed metals funds. The process is done once a year, Feldman says, and it’s a lengthy one. All of the bars are counted and a spot check on the bars’ serial numbers is performed to ensure accuracy.
  • Is 100% of the silver in the trust audited? Yes.
  • Does SLV engage in the lending if silver? No – it’s not permitted.
  • Does SLV ever hold cash or derivatives? SLV never owns derivatives, and it never owns any meaningful amount of cash, says Feldman.

ETFS Physical Silver (NYSEArca: SIVR)

  • Assets: $635.6 million
  • Expense ratio: 0.30%
  • Inception date: July 24, 2009
  • Where is the silver physically kept? The silver bars are kept in London
  • Who is the custodian?*: HSBC
  • How was the custodian chosen?: ETF Securities has a long-standing, established relationship with the leading precious metal custodians. We chose to leverage those relationships when it came to building a business in the U.S. market. HSBC and JP Morgan are leaders in the precious metal custody space, says Fred Jheon, managing director at ETF Securities.
  • Are there any sub-custodians**? Jheon says HSBC may use custodians from time to time, but the relationship is directly with HSBC.
  • How is the silver moved in and out of the vault? Jheon says that an authorized participant (AP) delivers unallocated metal to the Trust based on a creation. Based on the number of creation units, the corresponding amount of unallocated metal is then calculated and transferred to HSBC and allocated into silver bars as part of the Silver Trust holdings.  On a redemption, this process works in reverse.
  • What is the quality of the silver in the trust***? The silver bars meet LBMA standards, which means they’re 99.99% pure silver.
  • Who conducts the vault audits? Inspectorate. Audits are done twice a year: one is scheduled, the other is performed at random.
  • Is 100% of the silver in the trust audited? Yes.
  • Does SIVR engage in the lending if silver? No.
  • Does SIVR ever hold cash or derivatives? No.

As you can see, there are some differences between the funds – particularly when it comes down to expense ratio, trading volume and assets under management. What’s most important to you?

*Custodian: The organization that is responsible for safeguarding and holding the silver.

**Sub-Custodian: A situation in which the custodian holds some or all securities through another custodian in a local market. For example, the custodian may be in London, while the sub-custodian is in New York or another locale.

***Trust: Where the silver is physically kept.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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