The Impact of Fees

It is important to consider fees with any investment opportunity. Over time a higher-fee investment may lose ground to its lower-fee counterpart.

To look at the impact of fees, we chose two physically backed precious metal exchange-traded funds: SIVR is the Aberdeen Standard Physical Silver ETF, with $825 million under management, and an annual fee of 0.30%; and SLV is the iShares Silver Trust ETF, with $14 billion under management, and an annual fee of 0.50%.

We graphed the ratio of SIVR and SLV over a 10-year period.  Each fund does a fine job of tracking the price of Silver and of tracking the other fund.

At the start of 2011, the ratio (SIVR / SLV) was 101.8%.  Today the ratio is almost 103.9%. Over 10-years, the ratio has gained 2.1%, or 0.21% per year. As SIVR has a lower fee (0.30% vs. 0.50%) its performance has been superior to that of SLV by the exact difference in fees. For a hypothetical $100,000 investment, the difference would have been $2,000, with SIVR being the better performer.

The folks at iShares (Blackrock) do more advertising than the folks at Aberdeen Standard. SLV is 17-times larger by AUM than SIVR, so it may offer better liquidity. When we checked the two markets at 11:00 am on 12/29, we found the following:

SIVR25.27 x 1,00025.29 x 2,900
SLV24.30 x 28,0024.31 x 40,700
Market at 11:00 AM on Tuesday, 29 December 2020

The market for SLV is $0.01 narrower and the quantities bid-for and offered are substantially (15 times) larger. The $0.01 difference in spread amounts to just 0.04% (4 bps) however. This might be important for a very large investor or for a high frequency trader, but probably not for a long-term investor.

Before you make an investment in a fund or ETF, you should look at similar investment alternatives, and consider their fees and liquidity, relative to your needs.

Blackrock purchased iShares from Barclay’s in 2009.

Aberdeen Standard is the investment management arm of Standard Life Aberdeen, founded in 1825.

Disclaimer: It is important to note that past performance is not indicative of future results.