abrdn Silver ETF Trust: Form 10-Q for the period ended Sep 30, 2022

This information should be read in conjunction with the financial statements and notes to the financial statements included in Item 1 of Part 1 of this Form 10-Q. The discussion and analysis that follows may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and within the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements may relate to the Trust’s financial condition, operations, future performance and business. These statements can be identified by the use of the words “may”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or similar words and phrases. These statements are based upon certain assumptions and analyses the Sponsor has made based on its perception of historical trends, current conditions and expected future developments. Neither the Trust nor the Sponsor is under a duty to update any of the forward-looking statements, to conform such statements to actual results or to reflect a change in management’s expectations or predictions.

Introduction

The Trust is a common law trust, formed under the laws of the state of New York on July 20, 2009. The Trust is not managed like a corporation or an active investment vehicle. It does not have any officers, directors, or employees and is administered by the Trustee pursuant to the Trust Agreement. The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act. It does not hold or trade in commodity futures contracts, nor is it a commodity pool, or subject to regulation as a commodity pool operator or a commodity trading adviser in connection with issuing Shares.

The Trust holds silver and is expected to issue Baskets in exchange for deposits of silver and to distribute silver in connection with redemptions of Baskets. Shares issued by the Trust represent units of undivided beneficial interest in and ownership of the Trust. The investment objective of the Trust is for the Shares to reflect the performance of the price of silver, less the Trust’s expenses. The Sponsor believes that, for many investors, the Shares will represent a cost effective investment relative to traditional means of investing in silver.

The Trust issues and redeems Shares only with Authorized Participants in exchange for silver and only in aggregations of 50,000 Shares or integral multiples thereof. A list of current Authorized Participants is available from the Sponsor or the Trustee.

Shares of the Trust trade on the New York Stock Exchange (the “NYSE”) Arca under the symbol “SIVR”.

Valuation of Silver and Computation of Net Asset Value

On each day that the NYSE Arca is open for regular trading, as promptly as practicable after 4:00 p.m. New York time on such day (the “Evaluation Time”), the Trustee evaluates the silver held by the Trust and determine both the ANAV and the NAV of the Trust.

At the Evaluation Time, the Trustee values the Trust’s silver on the basis of that day’s LBMA Silver Price (the daily price of an ounce of silver as set at approximately 12:00 noon London, England time by LBMA-authorized bullion banks or market makers in an electronic, over-the-counter auction conducted by the ICE Benchmark Administration (“IBA”) and disseminated by major market vendors, or, if no LBMA Silver Price is made on such day or has not been announced by the Evaluation Time, the next most recent LBMA Silver Price determined prior to the Evaluation Time is used, unless the Sponsor determines that such price is inappropriate as a basis for evaluation. In the event the Sponsor determines that the LBMA Silver Price or such other publicly available price as the Sponsor may deem fairly represents the commercial value of the Trust’s silver is not an appropriate basis for evaluation of the Trust’s silver, it shall identify an alternative basis for such evaluation to be employed by the Trustee.

Once the value of the silver has been determined, the Trustee subtracts all estimated accrued but unpaid fees (other than the fees accruing for such day on which the valuation takes place that are computed by reference to the value of the Trust or its assets), expenses and other liabilities of the Trust from the total value of the silver and all other assets of the Trust (other than any amounts credited to the Trust’s reserve account, if established). The resulting figure is the adjusted net asset value (the “ANAV”) of the Trust. The ANAV of the Trust is used to compute the Sponsor’s Fee.

All fees accruing for the day on which the valuation takes place that are computed by reference to the value of the Trust or its assets are calculated using the ANAV calculated for such day. The Trustee subtracts from the ANAV the amount of the accrued fees so computed for such day and the resulting figure is the NAV of the Trust. The Trustee also determines the NAV per Share by dividing the NAV of the Trust by the number of Shares outstanding as of the close of trading on the NYSE Arca (which includes the net number of any Shares created or redeemed on such evaluation day).

The Trustee’s estimation of accrued but unpaid fees, expenses and liabilities is conclusive upon all persons interested in the Trust and no revision or correction in any computation made under the Trust Agreement will be required by reason of any difference in amounts estimated from those actually paid.

The NAV of the Trust is obtained by subtracting the Trust’s liabilities on any day from the value of the silver owned and receivable by the Trust on that day; the NAV per Share is obtained by dividing the NAV of the Trust on a given day by the number of Shares outstanding on that day.

The Quarter Ended September 30, 2022

The Trust’s NAV decreased from $987,726,374 at June 30, 2022 to $894,856,914 at September 30, 2022, a 9.40% decrease for the quarter. The decrease in the Trust’s NAV resulted from a decrease in the price per ounce of silver, which fell 6.86% from $20.42 at June 30, 2022 to $19.02 at September 30, 2022. There was a decrease in outstanding Shares, which fell from 50,300,000 Shares at June 30, 2022 to 48,950,000 Shares at September 30, 2022, as a result of 1,000,000 Shares (20 Baskets) being created and 2,350,000 Shares (47 Baskets) being redeemed during the quarter.

The NAV per Share decreased 6.92% from $19.64 at June 30, 2022 to $18.28 at September 30, 2022. The Trust’s NAV per Share fell slightly more than the price per ounce of silver on a percentage basis due to the Sponsor’s Fee, net of waiver, which was $699,126 for the quarter, or 0.30% of the Trust’s ANAV on an annualized basis.

The NAV per Share of $19.81 at August 9, 2022 was the highest during the quarter, compared with a low of $17.08 at September 1, 2022.

The decrease in net assets from operations for the quarter ended September 30, 2022 was $67,281,929 resulting from a realized loss of $50,071 on the transfer of silver to pay expenses, a realized loss on silver distributed for the redemption of Shares of $4,936,120, a change in unrealized loss on investment in silver of $61,596,612 and the Sponsor’s Fee, net of waiver, of $699,126. Other than the Sponsor’s Fee, the Trust had no expenses during the quarter ended September 30, 2022.

The Nine Months Ended September 30, 2022

The Trust’s NAV decreased from $995,151,629 at December 31, 2021 to $894,856,914 at September 30, 2022, a 10.08% decrease for the period. The decrease in the Trust’s NAV resulted primarily from a decrease in the price per ounce of silver, which fell 17.63% from $23.09 at December 31, 2021 to $19.02 at September 30, 2022. There was an increase in outstanding Shares, which rose from 44,750,000 Shares at December 31, 2021 to 48,950,000 Shares at September 30, 2022, as a result of 12,250,000 Shares (245 Baskets) being created and 8,050,000 Shares (161 Baskets) being redeemed.

The NAV per Share decreased 17.81% from $22.24 at December 31, 2021 to $18.28 at September 30, 2022. The Trust’s NAV per Share decreased slightly more than the price per ounce of silver on a percentage basis due to the Sponsor’s Fee, net of waiver, which was $2,321,212 for the period, or 0.30% of the Trust’s ANAV on an annualized basis.

The NAV per Share of $25.20 at March 9, 2022 was the highest during the quarter, compared with a low of $17.08 at September 1, 2022.

The decrease in net assets from operations for the period ended September 30, 2022 was $220,811,275 resulting from a realized gain of $119,528 on the transfer of silver to pay expenses offset by a realized loss of $4,157,087 on silver distributed for the redemption of Shares, a change in unrealized loss on investment in silver of $214,452,504 and the Sponsor’s Fee of $2,321,212. Other than the Sponsor’s Fee, the Trust had no expenses during the nine months ended September 30, 2022.

Liquidity & Capital Resources

The Trust is not aware of any trends, demands, commitments, events or uncertainties that are reasonably likely to result in material changes to its liquidity needs. In exchange for the Sponsor’s Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this report was the Sponsor’s Fee.

The Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust’s silver as necessary to pay the Trust’s expenses not otherwise assumed by the Sponsor. The Trustee will not sell silver to pay the Sponsor’s Fee but will pay the Sponsor’s Fee through in-kind transfers of silver to the Sponsor. At September 30, 2022, the Trust did not have any cash balances.

Off-Balance Sheet Arrangements

The Trust has no off-balance sheet arrangements.

Critical Accounting Policies

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Trust’s financial position and results of operations. These estimates and assumptions affect the Trust’s application of accounting policies. Refer to Note 2 to the Financial Statements for further information on accounting policies.

The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer of the Sponsor, and to the audit committee, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer of the Sponsor, the Sponsor conducted an evaluation of the Trust’s disclosure controls and procedures, as defined under Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer of the Sponsor concluded that, as of September 30, 2022, the Trust’s disclosure controls and procedures were effective.

There have been no changes in the Trust’s or Sponsor’s internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Trust’s or Sponsor’s internal control over financial reporting.

Except for the risk factor set forth below, there have been no material changes to the risk factors previously disclosed in the Trust’s Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2021.

Risks Related to Silver

On March 7, 2022, in response to Russia’s invasion of Ukraine, LBMA suspended five Russian silver refiners. New productions by such refiners will no longer be accepted as “Good Delivery” by the London Bullion market until further notice. The bars these refiners previously produced will still be considered Good Delivery, consistent with past suspensions of refiners by the LBMA. Fewer suppliers to the LBMA may lead to a lower supply of Good Delivery silver and further volatility in the price of silver.

General Risks

Armed conflict can result in significant disruptions to the commodities markets and could adversely affect the price of the Shares.

On February 24, 2022, Russia commenced an invasion of Ukraine. In response to such conflict or for other reasons, governments have imposed and may impose additional economic sanctions against Russia, certain other countries, entities and/or individuals. Economic sanctions and other similar governmental actions could, among other things, prevent or prohibit certain entities or individuals from participating in the bullion and commodities markets or otherwise impact the functioning of those markets. Such actions could affect the value of silver held by the Fund. Sanctions could also result in countermeasures or retaliatory actions, which may impact the value of silver. Although it is not possible to predict the impact that any sanctions and retaliatory actions may have on the Fund, such events could significantly impact the value of the Fund’s shares.