Two Precious Metal ETFs Set to Soar - ETF News And Commentary
May 19 2014 - 11:00AM
Zacks
Thanks to commodity strength and another bout of volatility in the
stock market, precious metals have been seeing smooth trading this
year. In fact, most of the precious metals are crushing the broad
market and the broad commodities in the year-to-date time
frame.
This is especially true as the two increasingly popular choices -
palladium and platinum – are outperforming this year driven by
continued supply disruptions in South Africa, fears of export
limitations from Russia and rising global demand. Palladium jumped
to a three-year high, climbing 15% this year while platinum gained
7%.
South Africa Worries Heating Up
South Africa is the world's largest platinum and second-largest
palladium producer, accounting for 80% and 33% of global supply
respectively (read: Will Election Hopes Boost The Fragile Five
Emerging ETFs?).
Tensions in South Africa are raising risks with the labor strike,
now in its fourth month, recently taking a violent turn. Four
platinum miners were killed on Wednesday as striking workers are
preventing other mineworkers to return to work, thwarting the
company's efforts to end the strike.
The longest and costlier strike ever by about 80,000 workers has
halted nearly 40% of global platinum production at the top three
producers – Anglo American Platinum, Impala Platinum and Lonmin.
Further, the strike has also resulted in a supply crunch for
palladium.
Risk in Russia is Growing
Escalating tensions between Russia and the West following the
annexation by the former of Ukraine's Crimea peninsula is also
threating the global supply. This is because tough sanctions
against Russia by the western powers might curtail export of the
metals from the country, resulting in lower global supplies (read:
Palladium ETF Surging on Tensions in Ukraine).
Demand is on the Rise
The automotive industry, mainly catalytic converters for vehicles,
is a big driver of demand in both platinum and palladium markets. A
rebound in the auto industry, new vehicle emission standards in
Europe and continued growth in Chinese auto sales would continue to
boost demand for the white metals.
Further, increasing industrial applications, higher retail
investments, and growing consumption of platinum and palladium for
jewelry will likely give a nice boost to their demand.
Given growing demand and dwindling supply, platinum and palladium
prices are poised to go up further, especially if the current
trends persist. As such, investors should definitely tap the
bullish fundamentals with the following two ETFs (see: all the
Precious Metals here):
ETF Securities Physical Palladium Shares
(PALL)
The fund seeks to match the spot price of palladium, net of fees
and expenses. With AUM of $507.5 million, the ETF owns palladium
bullion in plate or ingots kept in Zurich or London under the
custody of JPMorgan Chase Bank.
The product has expense ratio of 0.60% and sees moderate volume of
more than 75,000 shares a day. PALL is leading the precious metal
space, gaining nearly 16% in the year-to-date time frame.
ETFS Physical Platinum Shares (PPLT)
This fund tracks the performance of the price of bullion platinum,
before Trust expenses. With about $764 million in AUM, this is the
largest and the only physically backed platinum product and kept in
Zurich or London in plate and ingot form under the custody of JP
Morgan Chase Bank.
The product sees light volume of around 40,000 shares a day and
charges 60 bps in fees per year from investors. The ETF has added
about 8% in the year-to-date period (read: 3 Dirt Cheap Top Ranked
ETFs to Buy Now).
Bottom Line
Investors should note that these two products would continue their
outperformance given that the prolonged strikes in South Africa and
ongoing tensions in Russia are unlikely to be resolved any time
soon. These products have a Zacks ETF Rank of 2 or ‘Buy’
rating.
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ETFS-PALLADIUM (PALL): ETF Research Reports
ETFS-PLATINUM (PPLT): ETF Research Reports
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