Diversifying your portfolio into precious metals can provide a number of financial benefits. While investors often view gold as the metal of choice, silver has many of the same value characteristics and can be a great option for those seeking a viable alternative to gold.
What are ASX silver shares?
ASX silver shares are companies or units of a fund that trade on the ASX and are reasonably highly exposed to the price of silver. They can be shares in companies involved in silver exploration and mining or units in an exchange-traded fund (ETF) like Global X Physical Silver (ASX: ETPMAG) that aims to track the price of silver.
Some ASX silver shares offer investors a pure play on the price of silver. This means their business operations are focused exclusively on some form of silver production. So their share prices are intrinsically linked to the price of silver. Buying shares in a pure-play silver company is often considered on par with investing in the underlying commodity itself.
The only pure-play silver company currently trading on the ASX is Silver Mines Limited (ASX: SVL). The company owns the Bowdens silver project in central New South Wales, which it claims is Australia's largest undeveloped silver project.
Because the future profitability of the project is so dependent on the price of silver, the Silver Mines share price tends to follow the silver price quite closely. This means it gives investors similar diversification benefits to owning the physical commodity itself.
The miner South32 Ltd (ASX: S32) is an example of an ASX company with exposure to silver without being a pure play on the commodity.
Originally spun out of mining giant BHP Group Ltd (ASX: BHP) in 2015, South32 operates in many countries globally. Its mines and refineries produce a range of minerals and other products. One of its major projects is the Cannington silver mine in Queensland, which supplied the silver to make the medals presented at both the Sydney Olympics in 2000 and the Beijing Olympics in 2008.
However, because South32 has a diversified portfolio of projects outside Cannington, it isn't as reliant on the price of silver to boost its revenues.
Decreases in the price of silver might still hurt South32's bottom line, but there are many other contributing factors – including changes in the prices of other mineral commodities – that could affect its business operations, and consequently its share price. This means that the South32 share price will have a lower correlation with the price of silver than that of a pure-play company like Silver Mines.
Why invest in them?
Investing in silver stocks can help to diversify your portfolio, giving you exposure to different sectors of the economy. It is also an excellent way to add some commodities exposure to your portfolio without having to buy actual silver. This is a particularly good way to diversify your portfolio because many commodities perform very differently to the stock market.
Some commodities – especially precious metals like gold and silver – even tend to preserve their value in an economic downturn. This could mean that adding silver shares to your portfolio could help protect you from extreme losses in a bear market.
Top silver stocks on the ASX
As we've already mentioned, the only pure-play silver stock currently trading on the ASX is Silver Mines. However, many other companies in the ASX metals and mining category produce silver, in addition to other commodities.
ETFs like Global X Physical Silver are also silver shares, but sit within the financials sector of the market. Here are three examples of ASX silver shares ranked by market capitalisation from high to low.
| Company | Description |
| South32 Ltd (ASX: S32) | Operates one of the world's largest silver mines in Cannington, Queensland |
| Silver Mines Limited (ASX: SVL) | Owns the undeveloped Bowdens Silver Project in NSW |
| Global X Physical Silver (ASX: ETPMAG) | An exchange-traded fund backed by physical silver |
South32
South32 owns the Cannington silver mine, the largest operational silver mine in Australia and one of the largest globally. However, as we've discussed, South32 also has a diversified portfolio of mining assets and produces large amounts of metallurgical coal, manganese, alumina, aluminium, lead, zinc, and nickel in addition to silver.
South32 is a good choice for investors seeking exposure to a diverse range of commodities and precious metals, in addition to silver. However, bear in mind that the South32 share price will move in response to a range of market factors, not just changes in the price of silver.
Silver Mines
As we mentioned earlier, Silver Mines provides a genuine pure play on the price of silver due to its flagship asset, the undeveloped Bowdens silver project in NSW. The project is in the final stages of development approvals with the NSW Department of Planning and Environment after receiving no objections from any other NSW government agencies. The proposed mine would have a life of 16.5 years. The company expects it will produce approximately 66 million ounces of silver.1
Global X Physical Silver
ETFs trade on the ASX more or less like ordinary stock, only you don't buy a share in a company, you buy a unit in a fund. The fund manager then invests the money raised from the unitholders according to the fund's mandate. ETFs are a great way for everyday investors to gain exposure to different asset classes, including commodities like silver.
Global X Physical Silver gives investors quick, cheap, and easy exposure to the price of silver. It is backed by physical silver bullion, held by the fund's custodian, JPMorgan Chase Bank in London. The return unit holders in the fund receive on their investment should closely match the return they would receive had they actually bought and sold the physical asset (only with the ETF, they don't have to actually store the silver themselves!).
But beware, ETFs charge a management fee, which diminishes the potential return on investment (ROI). The fee for Global X Physical Silver is 0.49% per annum – for every $1,000 invested, you pay $4.90 each year in fees.
Benefits of investing in silver stocks
Investing in companies that produce precious metals like silver and gold can provide many benefits to your portfolio. Some of these are listed below:
- Diversification: The prices of precious metal commodities like silver are not highly correlated with the prices of most shares and other asset classes, meaning they can provide diversification benefits for your portfolio. This is because silver and gold prices often rally when share prices fall.
- Inflation hedge: Many investors see silver as a good store of value, making it an ideal 'safe haven' asset to hold during periods of economic uncertainty – like when inflation is high, and stock prices are falling (sound familiar?). As investors flock to these assets, prices are pushed up, which effectively provides a hedge against the negative impacts of inflation.
- Multiple uses: Silver has many industrial applications in addition to its status as a precious metal. It is used in many sought-after technologies, like touch screens, solar panels, and even water purification. High demand for silver from a number of different industry segments helps to stabilise its price.
And the cons…
There are also some drawbacks to investing in silver shares:
- Low returns: While they provide a dependable store of value over time, precious metals like gold and silver don't typically surge in price. This means silver stocks may not offer the same share price growth potential as companies in other sectors of the economy.
- Share prices may not fully reflect the price of silver: Depending on the type of investment, not all silver shares will give you full exposure to the price of silver. Companies have unique risks that will also play into the valuation that investors place on their shares. For example, one silver miner may have more debt than another, meaning their share prices perform differently, even if they are both considered pure-play silver companies.
Are ASX silver shares a good investment?
Investing in silver shares can provide excellent diversification benefits for your portfolio. The returns on silver have historically not been strongly correlated with the returns on the stock market, meaning that holding silver shares in your portfolio may help to protect you in an economic downturn.
The ASX offers many options for investing in silver shares, from diversified companies like South32 to pure plays like Silver Mines and Manuka Resources Ltd (ASX: MKR), to physically-backed commodity funds like Global X Physical Silver.
Before investing, always understand the risks involved, and consider whether the investment will fit your personal investing goals.
