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Surprise Loser and Gainer from VW Scandal: Metal ETFs

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While investors playing the automobile industry are concerned with the outlandish scandal involving the world's biggest automaker and the icon of German engineering, Volkswagen AG ( VLKAY ), there is a distant member- platinum - which has to bear the brunt. On September 23, platinum prices fell to its lowest level since January 2009 to $925.30 an ounce.

The Shocking Story in Short

On September 18, the U.S. Environmental Protection Agency ("EPA") and California Air Resources Board ("CARB") sent a notice to Volkswagen Group accusing the automaker of installing a software algorithm into 482,000 diesel cars in the U.S. that could bypass U.S emission tests. According to the EPA, Volkswagen vehicles emit nitrogen oxides at almost 40 times the standard amount which could pose risks to public health.

Volkswagen has admitted the charge and revealed that it has in fact installed the "defeat device" in 11 million diesel-powered vehicles across the world, unfolding a diabolical act in the automobile history. The revelation has sent the Volkswagen stock price in the red, plunging 32% and wiping $30 billion off its market value.

The falsification charge led Volkswagen Chief Executive Martin Winterkorn to resign. It could eventually result in penalties of up to $18 billion, per the EPA. The company has set aside €6.5 billion ($7.3 billion) to help cover the costs of the fallout (read: Europe ETFs That Hit 52-Week Lows on Volkswagen Scandal ).

Why Platinum?

Platinum is widely used in the automobile industry as catalytic converters, which allow complete combustion of noxious gases from car exhaust such as hydrocarbons, carbon monoxide, and nitrogen dioxide into less harmful mediums such as nitrogen, carbon dioxide and water vapor.

However, platinum is exclusively used in catalytic converters for diesel engines. This led the white metal to lose some of its luster as consumers started scorning diesel vehicles due to the VW scandal. Diesel vehicles were already experiencing lower demand amid falling crude oil prices turning people away towards gasoline vehicles.

Diesel engines power about 3% of the cars sold in the U.S. but about 50% in Europe. In Asia, South Korea and India are the key markets for diesel-engine vehicle growth, each accounting for 52% of domestic car sales . Thus, the negative sentiment surrounding diesel engines would hurt the demand for platinum significantly around the globe.

Platinum prices were already facing the odds given reports of abundant supply following the end of a prolonged strike by miners in South Africa last year as well as a stronger dollar. The latest VW scandal has further added to its woes.

ETFs in Focus

Below we discuss three platinum ETFs currently trading in the market, all of which have felt the heat of the VW scandal and are currently trading near their 52-week lows (see all Precious Metals ETFs here).

ETFS Physical Platinum ( PPLT )

This ETF tracks the spot price of platinum bullion, managing an asset base of $452 million. It charges 60 bps in fees and has an average trading volume of 32,000 shares. The fund lost 2.4% in the last five days and 21.3% in the year-to-date timeframe (as of September 24, 2015). It is currently trading near its 52-week low of $89.80 and has a Zacks Rank #3 (Hold) with a High risk outlook.

UBS ETRACS CMCI Lng Platinum Tot Ret ETN ( PTM )

This ETN tracks the UBS Bloomberg CMCI Platinum Total Return index, which measures the collateralized returns from a basket of platinum futures contracts, and gathered $20 million in assets. It charges 65 bps in fees from investors and exchanges only 2,800 shares per day. The note shed 1.9% in the last five days and 22.5% in the year-to-date period. It is currently trading close to its 52-week low of $9.88 and has a Zacks Rank #3 with a High risk outlook.

iPath Bloomberg Platinum SubTR ETN ( PGM )

This ETN tracks the Bloomberg Platinum Subindex Total Return index, which reflects the returns that are available through an investment in the futures contracts on the commodity of platinum. The note has garnered nearly $10 million in assets. It is expensive with an expense ratio of 0.75% and trades in a small volume of 665 shares per day. The note dropped 3.4% in the past five days and 24.3% so far this year. It is also trading near its 52-week low of $19.00 and has a Zacks Rank #3 with a High risk outlook.

Surprise Gainer

Palladium is a surprise gainer from the VW scandal, simply because this sister metal is used in catalytic converters, but for gasoline engines. More consumers are expected to turn toward gasoline-powered vehicles now, shunning diesel engines. Palladium prices touched its two-month high of $657.50 an ounce on September 23 (read: Precious Metal ETFs Regain Shine: Will it Last? ).

In order to ride the bullish trend in palladium prices , investors should consider ETFS Physical Palladium ( PALL ), which tracks the spot price of palladium bullion and amassed $218 million in assets. This fund, which charges 60 bps in fees and trades in an average volume of 34,000 shares, gained 8.5% in the last five days while it lost 18.2% in the year-to-date timeframe. It has a Zacks Rank #3 with a High risk outlook.

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VOLKSWAGEN-ADR (VLKAY): Free Stock Analysis Report

ETFS-PLATINUM (PPLT): ETF Research Reports

E-TRC UBS LG PL (PTM): ETF Research Reports

IPATH-BB PLAT (PGM): ETF Research Reports

ETFS-PALLADIUM (PALL): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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