Top 10 Precious Metals ETFs

|
Includes: DBP, DGL, IAU, JJP, PALL, PPLT, SIVR, SLV
by: David Fry

With inflation pressures either rising or falling and with the dollar in decline, it’s important to have portfolio exposure to precious metals. Why? Currency debasement and paper money in general have recently been disrespected, making them an essential part of any portfolio. Easy monetary policies which began in 2008 have hurt the value of the dollar. Since most commodities are priced in dollars this puts upward pressure on prices which becomes inflationary. We’ve cobbled together some good precious metals ETFs and ETNs where repetitive choices may exist but leave it to investors to pick the ones that suit them best.

As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator) I know the value of having an allocation to direct energy ETF/ETNs. In fact I was involved with trading precious metals in the late 1970s when the previous spike in gold and silver took place. As meteoric as most precious metals markets have become it remains essential to have exposure if nothing else for insurance protection against poor global fiscal and monetary policies. Uniquely, most ETFs/ETNs offer unleveraged exposure to these products as opposed to having to trade directly with futures contracts and leverage.

As with previous ETF issues, our technical analysis methodology involved evaluating monthly charts but we also utilize weekly charts to fine tune positions. The latter circumstance is due to the unique nature of commodity contracts. Most futures contracts to which ETF/ETNs are linked expire quarterly. To be effective, direct commodity investing requires investors to be more active although investors in gold in particular view the asset now as a long term hold. Nevertheless, we’re willing to trade them with the trend being out sometimes when it was more prudent to stay in with hindsight. We do this because we’ve seen large price changes over the years and remaining sanguine about this sometimes isn't an option. Therefore, it pays to be active and utilize a combination of weekly and daily technical charts to manage risk.

We recommend longer-term investors stay on the right side of the 12 month simple moving average while looking at monthly views. When prices are above the moving average, stay long, and when below remain in cash or short. But as stated previously, we also monitor weekly charts for signals that trends may become exhausted. In this circumstance we include and use Tom DeMark indicators from both weekly and monthly chart views.

These risk factors should be considered:

The CFTC’s varying considerations regarding commodity position limits as applied to the assets of ETF and ETNs - still in limbo.

  • Recently commodity exchanges have raised margin requirements to limit speculation.
  • The credit quality of ETNs given these are “notes,” many guaranteed by Barclay’s and Deutsche Bank.
  • Backwardation (back month contracts lower than front month) and Contango (back months higher than front month) can negatively affect contract rollover for investors.
  • Since most commodities trade in dollars, the value of the dollar can positively or negatively affect price behavior.
  • Frankly, the rise in many precious metals, particularly gold, is much disliked by the powers that be since it’s a negative vote by investors on their stewardship of fiscal and monetary conditions. As a result they may take actions to restrain price rises where and when they can.

ProShares, Direxion Shares and Deutsche Bank feature inverse and leveraged long/inverse ETNs for those investors wishing to hedge or speculate.

We rank the top 10 ETFs by our proprietary stars system as outlined below. However, given that for the most part we’re dealing in single commodity focused issues, rankings may come down to competitive fees, structure and inherent volatility of the linked precious metal.

Strong established linked index

Excellent consistent performance and index tracking

Low fee structure

Strong portfolio suitability

Excellent liquidity

Established linked index even if “enhanced”

Good performance or more volatile if “enhanced” index

Average to higher fee structure

Good portfolio suitability or more active management if “enhanced” index

Decent liquidity

Enhanced or seasoned index

Less consistent performance and more volatile

Fees higher than average

Portfolio suitability would need more active trading

Average to below average liquidity

Index is new

Issue is new and needs seasoning

Fees are high

Portfolio suitability also needs seasoning

Liquidity below average

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues, preferring instead to buy when prices are perceived as low and sell for other reasons when high. But this is not our approach.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

#1: iShares Gold Trust ETF (NYSEARCA:IAU)

IAU’s assets of the trust consist primarily of physical gold held by a custodian (J.P. Morgan Chase) on behalf of the trust. The fund was launched in January 2005. The expense ratio is .25%. AUM equal $9 billion and average daily trading volume is less than 7.5M shares. As of mid-December 2011 the YTD return was 16.91%. It’s useful to note that for competitive reasons iShares lowered the fee for IAU and split the shares 10:1 making it somewhat more attractive.

IAU Top 10Holdings

Data as of December, 2011

1. Physical Gold Bullion: 100.00%

#2: SPDR Gold ETF (NYSEARCA:GLD)

GLD’s trust holds gold bars and is expected from time to time to issue baskets in exchange for deposits of gold and to distribute gold in connection with redemptions of baskets. The investment objective of the trust is for the shares to reflect the performance of the price of gold bullion, less the trust’s expenses.

The sponsor believes that, for many investors, the shares represent a cost-effective investment in gold. The shares represent units of fractional undivided beneficial interest in and ownership of the trust and trade under the ticker symbol GLD on the NYSE Arca. The fund was launched in November 2004. The expense ratio is .40%. AUM (Assets under Management) equal $70 billion and average daily trading volume is 15M shares. GLD demonstrates better than any other how being first to market for a popular product will allow the issuer to achieve dominance in the space. As of mid-December 2011 the YTD return was 16.77%.

GLD Top Ten Holdings

Data as of December, 2011

1. Physical Gold Bullion: 100.00%

#3: ETF Securities Swiss Gold Shares (NYSEARCA:SGOL)

SGOL shares represent beneficial interest in the trust, which in turn holds allocated physical gold bullion bars stored in secure vaults in Zurich, Switzerland, on behalf of the Custodian, JP Morgan Chase Bank, N.A. Each physical bar is properly segregated, individually identified and allocated toward the property of the trust. All physical gold conforms to the London Bullion Market Association’s rules for Good Delivery. The fund was launched in September 2009. The expense ratio is .39%. AUM equal $1.8 billion and average daily trading volume is 192K shares. As of mid-December 2011 the YTD return was 16.80%.

SGOL Top Ten Holdings

Data as of December, 2011

1. Physical Gold Bullion: 100.00%

#4: PowerShares Gold Fund (NYSEARCA:DGL)

DGL follows the DBIQ Optimum Yield Gold Index Excess Return which is a rules based index composed of futures contracts on gold and is intended to reflect the performance of gold. The fund was launched in January 2007. The expense ratio is .50%. AUM equal $490 million and average daily trading volume is 126K shares. As of the mid-December 2011 the YTD return was 16.03%.

DGL Top Ten Holdings

Data as of December, 2011

1. Gold 100 Oz Futr Feb 12: 128.03%

#5: iShares Silver Trust (NYSEARCA:SLV)

The assets of the trust consist primarily of silver held by the custodian on behalf of the trust. The objective of the trust is for the shares to reflect the price of silver less the trust’s expenses and liabilities. As of mid-December 2011, the YTD return was 1.03%.

SLV Top Ten Holdings

Data as of December, 2011

1. Physical Silver Bullion: 100.00%

#6: ETF Securities Physical Silver Shares (NYSEARCA:SIVR)

SIVR shares represent beneficial interest in the trust, which in turn holds physical allocated silver bullion held in vaults by the Custodian (HSBC Bank USA N.A.). All physical silver held with HSBC conforms to the London Bullion Market Association’s (LBMA) rules for Good Delivery. The fund was launched in July 2009. The expense ratio is .30%. AUM equal $632 million and average daily trading volume is 462K shares. As of mid-December 2011 the YTD return was 1.30%.

SIVR Top Ten Holdings

Data as of December, 2011

1. Physical Silver Bullion: 100.00%

#7: PowerShares DB Precious Metals Fund (NYSEARCA:DBP)

DBP follows the DBIQ Otitim Yield precious metals Index Excess Return which is a rules based index composed of futures contracts in both gold (80%) and silver (20%). The fund was launched in January 2007. The expense ratio is .75%. AUM equal $551 million and average daily trading volume is 123K shares. As late mid-December 2011 the YTD return was 12.43%%.

DBP Top Ten Holdings

Data as of December, 2011

  1. Gold 100 Oz Futr Feb 12: 99.05%
  2. Silver Future Dec11: 25.15%

#8: iPath Dow Jones-UBS Precious Metals ETN (NYSEARCA:JJP)

JJP follows the Dow Jones-UBS Precious Metals Subindex Total Return Index which consists of futures contracts in both gold (73%) and silver (26%). The fund was launched in June 2008. The expense ratio is .75%. AUM equal $92.8 million and average daily trading volume is 14K shares. As of mid-September 2011 the YTD return was 11.75%.

JJP Top Ten Holdings

Data as of December, 2011

  1. Gold 78.25%
  2. Silver 21.75%

#9: ETF Securities Physical Plantinum Shares (NYSEARCA:PPLT)

PPLT shares represent beneficial interest in the trust which in turn holds allocated physical platinum bullion bars stored in secure vaults in London and Zurich on behalf of the Custodian, JPMorgan Chase Bank, N.A. Each physical plate and ingot is properly segregated, individually identified and allocated toward the property of the trust. All physical platinum conforms to the London Platinum and Palladium Market (LPPM) rules for Good Delivery. The fund was launched in January 2010. The expense ratio is .60%. AUM equal $636 million and average daily trading volume is 101K shares. As of mid-December 2011 the YTD return was -16.60%.

PPLT Top Ten Holdings

Data as of December, 2011

1. Physical Platinum Bullion: 100.00%

#10: ETF Securities Physical Palladium Shares (NYSEARCA:PALL)

PALL Shares represent beneficial interest in the trust, which in turn holds allocated physical palladium bullion bars stored in secure vaults in London and Zurich on behalf of the Custodian, JPMorgan Chase Bank, N.A. Each physical plate and ingot is properly segregated, individually identified and allocated toward the property of the trust. All physical palladium conforms to the London Platinum and Palladium Market (LPPM) rules for Good Delivery. The fund was launched in January 2010. The expense ratio is .60%. AUM equal $410 million and average daily trading volume is 156K shares. As of mid-December 2011 the YTD return was -18.48%.

PALL Top Ten Holdings

Data as of December, 2011

1. Physical Palladium Bullion: 100.00%

Precious metals have been at the center of investor attention over the past few years. Gold especially has been the best performing asset along with bonds. Other metals in this list have base metals qualities and are now declining due to economic growth uncertainties.

It’s also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab’s ETFs and Scottrade’s Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.

You may address any feedback to: feedback@etfdigest.com.

Disclosure: The ETF Digest has no current positions in the featured ETFs. (Source for data is from ETF sponsors and various ETF data providers.)