Auto sales are finally getting back on track after suffering a
major setback during the recession of 2008. The Big Three Detroit
automakers, who command a huge share of the U.S. auto market,
have bounced back with the help of a gradual recovery in the
global market, restructuring of their product portfolios, strong
pent-up demand and cheap financing.
Besides, higher average age of cars on U.S. roads (more than
10 years) and an improving unemployment rate have been the key
factors in driving auto sales in the U.S. despite the rising
gasoline prices. In fact,
in November 2012, U.S. auto sales reached its
five-year high by registering 15% growth to 1.14 million
sales
in vehicles. The good news came on the heels of a Sandy-wrecked
October suggesting that a long-awaited optimistic outlook may
finally be here.
With the recent uptick in Auto sales, some allied sectors,
especially metals like palladium and platinum should also be in
high demand (see
Why You Don't Need Both the Palladium and
Platinum ETFs
). It would thus be prudent for investors to tilt their
portfolios towards these sectors.
Automotive Recovery to Benefit Price of Palladium and
Platinum
The Automotive industry always acts as a catalyst for the
increase in prices of palladium and platinum. These metals find
use in vehicle exhaust catalytic converters to manage vehicle
emissions.
Thanks to the regulation on emission from diesel engines in
Europe, U.S. and Asia along with increased demand for vehicles,
ETFs
like
ETFS Physical Palladium Shares
(PALL) and
ETFS Physical Platinum Shares
(PPLT) should stand to benefit from an eventual ramp up in
pricing in 2013.
Both the funds are traded in the form of shares and are
designed to reflect the prices of the respective metals, plus
accumulated interest, less the Trust's expenses. The two metals
are securely stored in London and Zürich on behalf of the
custodian, JP Morgan Chase Bank and both PPLT and PALL currently
carry a Zacks Rank #2 (Buy).
Let's take a closer look of some of the key fundamentals for
both of these ETFs below and how they stack up in the broader
fund market:
ETFS Physical Platinum Shares
(
PPLT
)
Launched in August 2010, this passively managed exchange
traded fund seeks to replicate the performance of the spot price
of platinum (See
Platinum ETF Investing 101
).
The ETF has more than $8.0 billion in assets and trades in
volumes of around 68,465 daily. PPLT is a low-cost choice not
only in the platinum family of ETFs but also costs less than
holding physical platinum thanks to a tight bid ask spread. The
product charges a ratio of 60 basis points.
ETFS Physical Palladium Shares
(
PALL
)
Launched in August 2010, PALL seeks to gain exposure in
palladium (See
Zacks #1 Ranked Precious Metal ETF: PALL
). The ETF amassed more than $4.7 billion in assets and trades in
decent volumes, roughly 70,000, on average. Like PPLT, this ETF
also charges a modest expense ratio of 60 basis points.
The Bottom Line
Both the products are paying off quite handsomely. While in
the last one-year period, PALL's return of 10.71% has
outperformed PPLT (2.30%) by about 840 basis points, we are
seeing a reversal in trend since the beginning of the New
Year.
In the YTD period, palladium returned around 4.13% while
platinum delivered 14.24%. Probably, this is due to supply
concerns for platinum in key markets like South Africa.
The recent
South African mining strikes
will keep its supply range bound as it is a scarce metal. Apart
from an easy year-over-year comparison, the supply crunch could
be another reason for the fund's recent rally.
On the other hand, while being far more volatile than its
platinum counterpart, palladium is more responsive to the rebound
in the automotive sector. Manufactures sometimes substitute the
requirement of higher-priced platinum with this lower-priced
metal. Again, palladium's advanced durable nature also makes it a
better alternative for some aspects of the automotive
process.
Prices of metals like palladium and platinum were hard hit
during the economic recession owing to muted industrial activity.
Both PALL and PPLT are currently trading below their respective
52-week highs.
Yet, we may take advantage of their undervalued situation and
invest in these metal ETFs, particularly at a time when the auto
sector is revving up and supply concerns suggest a bullish trend
for 2013.
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ETFS-PALLADIUM (PALL): ETF Research Reports
ETFS-PLATINUM (PPLT): ETF Research Reports
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