Investor interest in precious metals has dropped this year as the vaccine rollouts and inflation have led to higher stock market returns, but there could be scope to add to your portfolio if inflation persists.
Earlier this week, the MFM Junior Gold fund is to be renamed the IFSL SIM Junior Gold and Silver Miners fund to incorporate the growing allocation to silver producers.
Manager Angelos Damaskos said: “The current macro-economic situation, with rising inflation and historically low interest rates, is likely to result in an investor move to safe-haven assets such as gold and silver bullion. This will strengthen the appeal of all aspects of the gold and silver mining-to-market process.”
Gold may be the more-recognisable of the precious metals, but it is its cousin – silver – that has been the better investment in recent years. Indeed, while the yellow metal has risen 32.4% over the past three years, the silver spot price has climbed 49.2% higher, as the below chart shows.
Total return of indices over 3yrs
Source: FE Analytics
It was bolstered by a particularly strong 2020, in which the silver price rose 38%, more than double the gold price, although this year it has fallen by slightly more. Below, Trustnet looks at three ways investors can access the silver market.
Buying direct
Investors that want to own a physical slice of silver themselves can do so through exchanges, although there are additional fees incurred. Typically, when buying physical silver, gold or any other precious metal, there is a difference between the price paid and the ‘spot price’.
Through an exchange options include coins, bullion or cubes, while jewellery, furniture or antiques are all other ways investors can purchase silver.
Traders will sell at a higher price than the spot price and purchase back metals below the spot price. This spread should be taken into account before making any investment decisions.
There is also an additional value-added tax of 20% added to the total cost of purchase, which is another hurdle that will require consideration.
Exchange-traded funds
For investors that don’t want to own the physical asset, there are funds listed on the stock market that track an index, usually the silver price.
These ETFs range in size, but the iShares Silver Trust is the largest at £3.2bn. Run by BlackRock Asset Management, the fund follows the LBMA Silver Price Index.
The £1.7bn WisdomTree Physical Silver ETF is another option in this space. The fund is backed by physical silver held by HSBC and only metal that conforms with the London Bullion Market Association's (LBMA) rules for Good Delivery can be accepted.
Broader commodity ETFs will also have exposure to silver, although this is a much more diverse way of investing in the asset, which will also include other metals as well as agriculture goods and oil and gas.
Active funds and stocks
There are a couple of options available for investors to buy directly into silver miners. Fresnillo is the largest producer of silver in the world, while Hochschild is another listed in the UK.
However, investing in individual stocks is more risky. Although profits will rise as the price of silver increases, the share price can be more volatile.
Another avenue is to buy funds that specialise in miners. The IFSL SIM Junior Gold and Silver Miners and Jupiter Gold And Silver funds invest in miners of both metals.
The £4.5bn BlackRock GF World Mining fund is another option, although it only has 0.26% of the portfolio invested in silver, suggesting it is more appropriate as a broad brush approach to the mining sector.