IAU Offers Lower Cost Gold Exposure Than SIL

The Global X - Silver Miners ETF (NYSEMKT:SIL) and iShares Gold Trust (NYSEMKT:IAU) differ most notably in asset focus, volatility, and cost: SIL targets silver mining stocks with higher price swings and expenses, while IAU provides direct gold exposure with lower fees and substantially less volatility.

SIL and IAU both appeal to investors seeking precious metals exposure but take fundamentally different approaches. SIL holds a portfolio of global silver mining companies, introducing equity risk and sector concentration, whereas IAU tracks the price of physical gold, providing direct commodity exposure without operating company risk. This comparison explores their cost, risk, returns, and portfolio makeup to help investors decide which may better match their objectives.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

IAU is more affordable, charging less than half the expense ratio of SIL, which may appeal to cost-conscious investors or those seeking to hold for the long term.

Performance & risk comparison

What's inside

IAU is structured to track the price of physical gold, making it a pure-play on gold's spot price. The fund has been operating for 21 years and, with $79.7 billion in assets under management, represents a large and highly liquid way to gain exposure to gold. As a trust, it does not hold equities or diversify across sectors; instead, its performance closely mirrors gold itself, and sector data lists it as 100% real estate due to fund classification conventions, not because of actual holdings.

In contrast, SIL invests entirely in basic materials, with all holdings in silver mining companies. Its top positions include Wheaton Precious Metals Corp (NYSE:WPM), Pan American Silver Corp (NYSE:PAAS), and Coeur Mining Inc (NYSE:CDE), which together make up a significant portion of the fund. This means SIL's performance can be influenced by company-specific factors, operational risks, and equity market swings in addition to silver prices. SIL holds 41 companies, offering some diversification within the silver mining industry but not beyond it. Neither fund employs leverage or hedging strategies, and both are straightforward plays on their respective metals.

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What this means for investors

Investors should note that only IAU is a precious metals ETF in a direct sense, since it tracks the price of gold.

As previously mentioned, that stands in contrast to SIL, an ETF of silver miners. Indeed, it will have a significant degree of correlation as high silver prices will motivate those companies to ramp up mining activity.

However, the correlation is not perfect since pre-production and production activities both take time. This means investors should not view these two as a simple comparison between silver and gold.

Additionally, price volatility with silver is higher than that of gold. That makes investing in SIL riskier than that of a gold-mining ETF. Should the spike in silver prices be temporary, silver miners could find themselves mining a product that will yield less revenue than they had anticipated.

This means investors have to keep risk tolerances in mind if investing between the two. If one wants to minimize risk, IAU is likely the more suitable investment vehicle.

Moreover, for almost all of the previous five years, IAU outperformed SIL. That suggests it may not pay for investors to assume more risk by choosing SIL.Investors should note that only IAU is the precious metals ETF in a direct sense.

Will Healy has positions in iShares Gold Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.