Glittering Returns: iShares Silver Trust Outpaces Sprott Gold Miners ETF

Precious metal shave been one of the market’s hottest sectors the past year. The iShares Silver Trust (NYSEMKT:SLV) provides direct exposure to silver prices, whereas Sprott Gold Miners ETF (NYSEMKT:SGDM) targets the equity of companies mining gold, leading to different risk-return profiles and income potential.

Investors looking for precious metals exposure can choose between owning the physical commodity and the companies that extract it. While both can serve as inflation hedges, investing in the metals directly often exhibits volatility patterns different from those of metal mining stocks, which are influenced by corporate balance sheets and operational costs.

Snapshot (cost & size)

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

Both funds have the same expense ratios of 0.50%.

Performance & risk comparison

What's inside

The iShares Silver Trust aims to track the performance of physical silver prices, providing direct exposure to the metal without buying physical silver or investing in companies that mine it. Launched in 2006, the trust allocates 100% of its assets to the basic materials sector through its physical silver holdings. Because it owns a commodity rather than equities, it cannot pay dividends.

The Sprott Gold Miners ETF tracks an index of U.S. and Canada-listed gold mining companies. Launched in 2014, the fund holds 39 securities and similarly maintains 100% exposure to the basic materials sector. Its largest holdings include 11.48% of its portfolio in Agnico Eagle Mines (TSX:AEM.TO), about 8.5% in Barrick Mining (TSX:ABX.TO), and just over 8% in Newmont (NYSE:NEM). The fund has a trailing-12-month dividend of $0.73 per share.

Which fund is the better buy?

It’s hard to argue that the 100% past-year return of the iShares Silver Trust isn’t impressive. But that doesn’t mean it’s the right fund to be buying now.

Historically, gold outperforms silver as a metal because of gold’s traditional position as the most desirable precious metal. That doesn’t mean silver still can’t outpace its glittering cousin in the near future, especially since industrial demand is behind much of its strength. Gold’s performance, meanwhile, is driven more by hedging against inflation and currency weakness.

For a long-term investor, the Sprott Gold Miners ETF is the wiser choice. Funds that hold metal producers, like SGDM, see most of the benefit of rising metal prices. Historically, the majority of a gold miner’s stock price has moved in tandem with the price of the commodity. Miners also offer additional potential benefits for investors: their profit margins usually rise with rising gold prices, they can pay dividends from their operations, and smaller miners are often acquired by larger miners seeking growth, leading to stock price gains.

A major consideration for many investors, too, should be taxes. The holding structure of iShares Silver Trust means that investors of SLV are taxed as if they own the actual metal. That means many U.S. investors may be exposed to higher commodity-linked income tax rates.

For more guidance on ETF investing, check out the full guide at this link.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.