We say it over and over again here at Cabot: We’re stock pickers. Everything else is secondary, and that includes ETFs—but there are times when investing in exchange-traded funds makes sense. And if you invested in silver ETFs in particular this year, you picked the right time.
The iShares Silver ETF (SLV) is not only the most popular silver ETF out there ($34 billion in assets under management, dwarfing other silver funds), but it’s also put together a banner year, rising 130% on the back of a massive rally in the white metal.
That’s nearly twice the gains of the SPDR Gold Trust (GLD), which is up 66% this year.
For all the attention that gold (and gold stocks) has gotten this year, silver has been the faster-rising precious metal, as it’s bullishly closed what could have been a troubling gold/silver price ratio.
As you can see in the following chart (from MacroTrends), gold briefly traded at 100x the per-oz value of silver.
That ratio was only eclipsed in April 2020, during the peak of the Covid panic, and it usually portends a reversal.
Price ratios like this resolve in one of two ways. Either the relatively overvalued asset gets cheaper (gold prices go lower) or the undervalued asset rises to close the gap, which we saw in this instance, as silver prices have risen by more than 33% in the last month and more than 88% in the last six.
That’s the more bullish outcome (for precious metals investors at least), as it shows that gold is holding its upside move this year and silver is just belatedly joining the party.
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More important than the booming success of SLV itself, however, is what it says about ETF investing. When chosen selectively and at the right times, ETFs can be an efficient and profitable place to invest your money. Sector ETFs can be particularly profitable because they allow you to invest precisely in the economic sectors you think are most likely to bring the biggest gains.
So, when a sector (or commodity) such as silver is thriving the way it has this year, that’s the time to buy a silver ETF such as SLV. The more specific the sector ETF, the better, as it gives you a level of control over your sector investment that’s unmatched outside of buying individual stocks.
Stock picking can be hard, especially when it comes to a sector like silver, where your edge with an individual stock may be dependent not only on how much you know about silver mining, but also on company-specific success. Besides, in the case of silver (or gold), it’s really the sector that you feel more strongly about than any specific stock.
By investing in SLV, you gain access to silver itself and aren’t reliant on the performance of individual miners.
And if you’re more interested in ETFs than individual stocks, consider subscribing to Cabot Money Club, where Chief Analyst Nancy Zambell has put together a portfolio of ETFs for investors just like you.
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*This post has been updated from a previously published version.
