By Stoyan Bojinov
ETF Securities, known for listing the world’s first physical gold ETF, debuted the first ever physically-backed precious metals ETF that focuses exclusively on silver, platinum, and palladium late last year. Since its inception in December 2011, WITE has accumulated just over $45 million in assets under management and trades on average over 10,000 shares daily, showcasing the demand for precious metals exposure during a tumultuous period in the markets. Nonetheless, it’s been a tough year for commodities across the board as debt woes in Europe and slowing growth in China have painted a gloomy outlook for raw materials demand in developed and emerging markets alike [see Ten Unexpected Observations On YTD ETF Returns].
Under The Hood
WITE is the only offering in the Precious Metals ETFdb Category that offers bundled exposure to silver, platinum, and palladium under one ticker. This one-of-a-kind offering is designed to reflect the performance of the prices of silver, platinum, and palladium bullion through a portfolio that is comprised of physical exposure to each of the metals. From an allocation perspective, WITE dedicates about 60% of its total assets to silver, while platinum account for 30%, and palladium fills in the last slot at 10%. JP Morgan Chase Bank is the custodian for the fund’s vaults, with the silver stored in London, while the platinum and palladium are either held in London or Zurich [see WITE Fact Sheet].
Thanks to the rapid expansion of the exchange-traded universe, investors now have multiple tools to choose from when it comes to selecting the most optimal commodity instrument for their portfolios, taking into account both relative needs as well as risk tolerance.
For precious metals exposure, investors can opt for one of several futures-based or physically-backed products, while some may even choose to gain tangential exposure through commodity producers. Physically-backed products, like WITE, are designed to move in unison with the spot price of the underlying metals, while futures-based ETPs may deviate from changes in spot prices depending on the state of futures markets or yields available on excess cash. Futures-based exposure introduces several nuances and additional factors which impact bottom line performance: these products depend on the spot price of the metal, roll yield related to the slope of the futures curve, and interest earned on non-invested cash.
Performance and Outlook
So far 2011 has been a tough year for all asset classes, with U.S. equity indexes holding onto minor gains while emerging markets lag behind in red territory. Uncertainty seems to plague every corner of the market as volatile trading has become a dominant theme, and unfortunately, WITE hasn’t moved much in terms of price since its launch late last year.
When considering the chart above, WITE has turned in a fairly flat performance since its inception in early December of 2010, while the iShares Silver Trust (SLV) has gained close to 10% in the same period. However, it’s important to consider that WITE provides silver exposure with a slice of platinum and palladium, resulting in a more well-rounded precious metals portfolio that should exhibit lower volatility over the long haul. In fact, when we consider each of the fund’s respective 200-day volatility metrics we see that SLV has a reading of 52%, while WITE boasts a “tamer” 40%.
WITE may be an appealing ETF for investors looking to make a bullish bet on a continuing global economic recovery, given the vast number of industrial applications for each of the metals that this fund offers exposure to. Many analysts are expecting for precious metals prices to continue their ascent, in fact, Thomson Reuters GFMS recently reported that it expects for the average price of silver in 2012 to be above $45 an ounce. Rising consumption of electronics, automobiles, and jewelry across emerging markets along with ongoing inflation fears, are two fey fundamental factors that paint a bullish investment case for the white metals, given their extensive industrial use and potential safe-haven appeal.
Disclosure: No positions at time of writing.