Platinum is one of the most popular niche commodities and can be
considered an extremely lucrative investment avenue. This metal is
also seeing more interest thanks to its role as a diversification
agent for investors who are heavy in gold and silver, but still
want to remain exposed to the precious metal group.
At present, however, the price of the metal has plunged
immensely and appears to be undervalued at current levels. This is
largely due to platinum's high beta standing and dependence on more
cyclical corners of the market (
Top Three Precious Metal Mining ETFs
Platinum Price Drivers
There are various factors which act as a catalyst for the
increase in prices of platinum. Firstly, the automotive industry is
a big driver of demand in the platinum market, specifically in
catalytic converters to manage vehicle emissions.
However, a slowdown in many key markets and relatively high oil
prices have pushed demand for autos lower, driving the price of
platinum lower. Although, there is some hope for this slice of the
market, as rising consumer confidence and a slowly improving
outlook in some regional economies could boost automotive, and
thereby platinum, demand in the near future.
Another area which can boost the demand for the metal is the
gradual increase in demand for platinum jewelry. With a possible
reversal in economic trends and a rise in disposable income of the
consumers, demand for jewelry will rise. This could result in
higher demand for the metal and possibly a price increase as well (
Time to Invest in Platinum ETFs?
If these forces work together, this will eventually result in
demand supply imbalance resulting in ramp up in prices of the
Unfortunately, today's economic outlook is by no means certain,
and another recession could be around the corner. If that happens,
platinum could be a compelling short sale candidate and especially
so as a pairs trade with a metal like gold which is often seen as a
Either way, an investment in a platinum ETF could be an
interesting, but potentially high risk, choice in the market. For
investors seeking to make a play on the metal, we have highlighted
three quality options that could help to accomplish goals in this
corner of the space:
ETRACS CMCI Long Platinum Total Return (
ETRACS CMCI Long Platinum Total Return is an ETN designed to
track the performance of the UBS Bloomberg CMCI Platinum Total
Return Index. The Index measures the collateralized returns from a
basket of unleveraged investment in platinum futures contracts. The
commodity futures contracts are targeted for a constant maturity of
This ETN neither holds the platinum in physical form nor does it
invest in the form of bullion or ingots. It reflects the platinum
price by offering a notional investment in platinum future
contracts and has assets under management of $32.2 million (see
more in the
Thanks to this approach, there is no tracking error involved;
however, credit risk is present since it is a debt security. Also,
the fund appears to be less liquid than its counterpart PPLT as it
trades volumes of 11,900 shares per day.
In terms of year to date performance, PTM is more or less flat
since the start of January. However, the product has lost about 14%
in the past three month period suggesting extreme volatility is
possible in this product.
Currently, PTM has a Zacks ETF Rank of 5 or "Strong Sell"
ETFS Physical Platinum Shares (
For a bullion-backed approach to platinum ETF investing,
investors can look to ETFS Physical Platinum Shares. PPLT is the
only ETF which is backed by physical metal and holds the metal in
the form of bullion or ingots. The metal is securely stored in
London and Zürich on behalf of the custodian, JP Morgan Chase
Investing through PPLT in platinum represents a cost-effective
and suitable mode for investors. It is expected that the
transaction costs for buying and selling the shares will be lower
than purchasing, storing and insuring physical platinum for most
investors (also see
Has The Junior Gold Mining ETF Lost Its Luster?
This ETF is designed to track the spot price of Platinum
bullion. PPLT is by far the most liquid option available in
platinum ETF investing trading with volumes of 23,300 a day. The
fund trades with assets under management of $680.4 million.
The expense ratio of 0.60 basis points also appears to be much
lower than other ETFs in the space despite the relatively greater
costs associated with physically storing the metal (
Create a Diversified Portfolio Using ETFs
The fund had delivered a positive return of 0.1% since the start
of the year. However, PPLT has solidly outperformed PTM in the past
three month period, losing about 8.4% in the time period.
Currently, PPLT has a Zacks ETF Rank of 5 or "Strong Sell"
First Trust ISE Global Platinum Index (
Investors should note that this ETF differs from its
counterparts in a way that instead of providing direct exposure to
platinum price, it seeks to invest in public companies which deal
in mining or refining metals of the platinum group.
This means that there is some equity risk in this fund, however
you do get a basket of companies in the product. Prices of these
securities will still play off of platinum but there will not be a
100% correlation either.
PLTM tracks the ISE Global Platinum Index which is designed to
provide a benchmark for investors interested in tracking public
companies that are active in platinum group metals (PGMs) mining
based on revenue analysis of those companies. PGMs include
platinum, palladium, osmium, iridium, ruthenium and rhodium.
In other words, companies included in the index must be actively
engaged in some aspect of platinum group metal mining such as
pulling the metals out of the ground, refining, or exploration.
Interestingly, the fund also uses a unique methodology to
develop weightings based on revenue exposure to PGM production. The
component securities are grouped into linearly weighted quartiles
and then equally weighted within each quartile (also see
Copper Mining ETFs Head-to-Head
The fund trades with an asset base of $7.75 million. Liquidity
profile of the ETF is very low compared with the above two as its
volume base stands at 6,300 shares per day. The expense charged is
also high compared to its counterparts, at 70 basis points
The fund holds a total of 23 stocks and does not appear to be
diversified as concentration risk is very high at 66.2%. Among the
sectors holdings, MMC Norilsk Nickel JSC (ADR), Impala Platinum
Holdings Limited and Johnson Matthey Plc take the top three
positions with 7.69%, 7.43% and 7.26% of assets invested.
In terms of performance, PLTM has been even more volatile than
its metal-based counterparts. The product has lost about 23.8% in
the past three months and a similar figure from a year-to-date
look, suggesting that it could be time to take a closer look at
this beaten down market segment.
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FT-ISE GLBL PLT (PLTM): ETF Research Reports
ETFS-PLATINUM (PPLT): ETF Research Reports
E-TRC UBS LG PL (PTM): ETF Research Reports
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