[Practical Finance] Bank Outlook 'Sparkling'... Betting with ETN and ETF Too

Silver Investment ETF·ETN Returns Soar
Shinhan Leverage Silver Futures ETN 109% Profit

[Asia Economy Reporter Minji Lee] If investing directly in physical silver is burdensome, you can consider indirect investment through financial products listed on the domestic stock market. Although you do not directly purchase silver through exchange-traded funds (ETFs) and exchange-traded notes (ETNs) that track silver futures indices, you can earn profits equivalent to the rise in silver prices.

According to the Korea Exchange on the 2nd, there are a total of seven ETP (ETFㆍETN) products available for investing in silver in the domestic stock market. In the ETF market, KODEX Silver Futures ETF is the only one, while in the ETN market, Shinhan Financial Investment and Samsung Securities hold four and two products respectively that track silver futures indices with leverage, inverse, and leveraged inverse options. These products have recorded returns exceeding 50% as silver prices hit their highest levels in about seven years since August 2013.

The KODEX Silver Futures ETF, the only silver investment product in Korea, has yielded nearly 54% returns this year. Compared to March 19, when prices plunged due to the impact of COVID-19 (2,665 KRW), it has risen by about 128%. This ETF tracks the S&P GSCI Silver Total Return Index calculated by S&P, which is based on silver futures prices listed on the New York Commodity Exchange (COMEX). Tiger Gold and Silver Futures is also listed, but this product invests simultaneously in both gold and silver.

Shinhan Silver Futures ETN has also yielded 55.8% returns this year. The Shinhan Leveraged Silver Futures ETN, which aims for twice the return, has recorded about 109% returns. This product tracks the recent monthly returns of silver futures traded on the Chicago Mercantile Exchange (CME) electronic platform.

As silver has gained attention as a safe asset alongside gold, the number of investors trading silver has significantly increased. Looking only at ETN products, as of the 7th when silver prices reached their peak, the trading volume of six silver ETN stocks was 5.18 million shares, accounting for 15% of the total trading volume of commodity ETNs (35.19 million shares) listed on the domestic stock market. Typically, commodity ETNs investing in crude oil, gold, nickel, and agricultural products are dominated by crude oil and natural gas trading volumes, but the increased volatility in silver prices appears to have attracted more investors.

Investors have also started investing in silver in overseas markets. Among the overseas stocks with the largest net purchase amounts by individuals in the U.S. market over the past month, ETFs investing in silver ranked 18th and 22nd. Individuals net purchased 22.2 billion KRW (18.79 million USD) worth of iShares Silver Trust, the largest fund by assets under management, and 16.8 billion KRW (14.25 million USD) worth of ProShares Ultra Silver, which tracks twice the return of silver prices. These amounts exceeded net purchases of Microsoft (12.96 million USD), Bank of America (8.09 million USD), and Boeing (7.24 million USD). When investing in silver through overseas ETFs, it is classified as overseas stocks, so a 22% capital gains tax is imposed if the annual profit exceeds 2.5 million KRW, which should also be considered.

The securities industry expects further increases in silver prices. While high volatility should be kept in mind, given silver’s characteristics as both a precious metal and an industrial material, prices are expected to continue rising in a low-interest and economic recovery phase.

Hwang Hyun-soo, a researcher at Shin Young Securities, explained, "Industrial demand for silver accounts for more than half of global silver demand, and demand for solar panels has shown a steady upward trend since 2011, which suggests that silver prices will continue to rise." He added, "The impact of COVID-19 has reduced operating rates at non-ferrous metal mines including those in Chile, and the slow recovery of silver mine production is another factor predicting price increases."

This content was produced with the assistance of AI translation services.