A closed-end fund for silver managed by Sprott Asset Management LP of Canada that trades at a premium has outperformed a rival exchange traded fund (ETF) in 2011.
Sprott Physical Silver Trust is up 47.6% so far this year through April 18, according to Morningstar, while iShares Silver Trust gained 40.6%.
The performance disparity may be partly explained by the fact that the Sprott silver trust is a closed-end fund, and is trading at a premium to net asset of more than 20%.
Some observers speculate the premium is fueled by a unique feature of Sprott Physical Silver Trust that allows shareholders to redeem large chunks in exchange for physical delivery of silver bullion.
The iShares Silver Trust has a so-called ETF arbitrage mechanism that generally keeps the price of a share close to NAV. In other words, it doesn't see the premiums and discounts that sometimes appear in closed-end funds.
Sprott Physical Silver Trust has total assets of $972.4 million, according to Sprott, compared with $15.2 billion for iShares Silver Trust.
Silver ETFs See Performance Diverge
Source: ETF Trends, John Spence (4/19/11)
"Closed-end silver funds are trading at a premium."