Gold is not the only commodity you can use to diversify an equities portfolio. Here is a closer look at the ETFS Physical Silver ETF (ASX: ETPMAG).
Investing in silver
The rationale for investing in silver is largely the same as it is for gold. Silver is a physical asset with limited supply and is widely accepted as a store of value and a hedge against inflation.
Much like gold, silver usually has a low or negative correlation with shares, making it a useful addition to an equity portfolio. Some investors prefer silver to gold because it is a cheaper option when buying the physical asset, however, this is not such an issue with ETFs where the commodity can be ‘divided’ into smaller units.
Commodities ETFs are a small but fast-growing sub-sector of ASX-listed ETFs and their total market cap has increased by nearly 170% over the last 12 months with a combination of capital growth and increased investment.
The EPTMAG ETF
The ETPMAG ETF is the only physical silver ETF on the ASX and has funds under management (FUM) of around $125 million. The ETF aims to track the movements in the silver spot price, minus the 0.49% annual management fee.
ETPMAG is backed by physical silver, which is held by JPMorgan Chase Bank, N.A., and each silver bar is individually identified and allocated to unitholders. This means that units of the ETPMAG ETF are redeemable for physical silver if you want to hold the actual asset rather than units of the ETF.
Over the last 12 months, the ETF has returned 24.12% which could serve as evidence that silver can be a very useful portfolio diversifier when equities are volatile. Looking back further, ETPMAG has returned 4.97% per year over the last five years and 2.38% per year for the last 10 years.
My take
This ETF is not something you would typically look at for high capital growth and it does not pay a dividend, but it could certainly serve a purpose in a diversified portfolio and could be especially useful during a market downturn or when shares are volatile.
Whether you prefer to invest in gold or silver or some other metal is a personal choice, but it is worth considering some type of commodity ETF when building a balanced ETF portfolio.
