The meteoric rise of gold to a new all-time high, combined with
the massive amounts of media coverage of the yellow metal, has the
gold bugs buzzing and their pockets growing with cash. But, as well
as gold has performed in 2010, it's not the only precious metal
experiencing a boost in demand.
There are others, including silver, platinum and palladium that
serve not only as safe-haven bets when markets are roiled by
uncertainty, but also have far more industrial applications than
That means investments in these other precious metals, unlike
gold, take on a whole new dimension once the economy starts growing
and demand for industrial materials starts ramping up.
Best of all for investors, precious metals are more and more
available in an ETF package, which makes insulating portfolios from
the vagaries of a world in upheaval a little easier every day.
Gold's little cousin silver is starting to garner more attention
from investors as it nears a 30-year high.
The iShares Silver ETF (NYSEArca:SLV) is up 22 percent
year-to-date versus a gain of 16 percent for the SPDR Gold ETF
(NYSEArca:GLD). Even more interesting are the comparisons when
looking at the performance going back to the beginning of 2009.
Since that time, GLD has gained 44 percent as SLV rallied 80
Silver is an interesting play because it doesn't have the allure
of gold, but it can be considered a poor man's alternative to
buying gold. Gold is now about $1,150 an ounce, while silver can be
had for a mere $21 an ounce. Silver also has multiple applications,
for example, in the auto industry, health care sector and water
Other than SLV, currently the most popular silver ETF on the
market, there are other options for investors who would like
exposure to the silver sector. The alternative for an ETF that is
physically backed by silver bullion is the ETFS Physical Silver
Shares (NYSEArca:SIVR). With a net expense ratio of 0.30 percent
it's less than SLV's 0.50 percent price.
When the price of the commodity rises, the value of the related
mining companies typically does even better and vice versa when the
price of the commodity falls. If the strategy is to ride the rally
in silver, there's the Global X Silver Miners ETF (NYSEArca:SIL).
The ETF charges an expense ratio of 0.65 percent and invests in a
basket of 25 global silver mining stocks. There's a heavy
concentration on Canada and Mexico as the two North American
countries make up 80 percent of the allocation. Since the end of
June, SIL is up 22 percent and SLV has added 11 percent; the
leverage is clearly defined with the mining ETF.
Platinum And Palladium
While both gold and silver have made big moves this year,
neither one can match the 33 percent gain in the price of
palladium. Platinum is up 10 percent and lagging its peers, but
greatly outpacing equities.
There are three exchange-traded products (ETPs) that give
investors access to the platinum sector. What's amazing about this
niche sector of ETPs is that all three products vary in the manner
they track the price of platinum.
The iPath Dow Jones Platinum ETN (NYSEArca:PGM) invests in one
futures contract that tracks the price of platinum. As the contract
is expiring, the ETN must roll out the contract and purchase a new
contract. The annual expense ratio is 0.75 percent. Year-to-date
the ETN is down 1 percent.
The E-TRACS UBS Long Platinum ETN (NYSEArca:PTM) measures the
collateralized returns from a basket of platinum futures contracts.
The platinum futures contracts are targeted for a constant maturity
of three months. The expense ratio is 0.65 percent and PTM is up 4
percent in 2010.
The ETFS Physical Platinum Shares (NYSEArca:PPLT) differentiates
itself because the shares are backed by actual platinum and
therefore will track the spot price of the metal, less expenses.
The ETF's expense ratio is 0.60 percent.
As of today, my firm owns a small amount of PTM, the platinum
ETN, for clients and we're looking to increase our exposure to the
precious metal. Because PPLT wasn't available when we originally
purchased PTM, we'll now look to PPLT as the best option for
exposure to platinum due to the manner in which they track the
metal, and the expense ratio.Investing in the big winner of 2010,
palladium, can be achieved in one of two ways. The ETFS Physical
Palladium Shares (NYSEArca:PALL) is similar to PPLT, in that the
ETP is backed by actual palladium and therefore will track the spot
price minus expenses. The expense ratio is 0.60 percent.
The First Trust ISE Global Platinum Index Fund (NYSEArca:PLTM)
is composed of a basket of platinum-related stocks from around the
globe. The ETF charges an expense ratio of 0.70 percent and has
struggled to gain any momentum as the underlying metal has
Building A Precious Metals Portfolio
I can make a case to own all four precious metals highlighted in
the article. The problem is that most investors do not have an
unlimited bankroll and must decide where to put their money.
At this time the average investor might consider allocating
about 10 percent of their portfolio to precious metals. Of that 10
percent, they might allocate 4 percent to gold, 3 percent to silver
and the remaining 3 percent to PPLT.
Palladium is left out only due to limited funds and the fact
that it has already made a big run, and I feel platinum is due for
a breakout and rally in the coming months.
Matthew D. McCall is editor of The ETF Bulletin and
president of Penn Financial Group LLC, a Ridgewood,
N.J.-based wealth management firm specializing in investment
strategies using ETFs.
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