Platinum, Palladium ETFs Look To Bounce Back

by: Tom Lydon

Platinum and palladium exchange traded funds dramatically lagged gold in 2011 in the metals category, but a pickup in the global economy could boost the ETFs this year and help close the performance gap.

Funds focused on these metals have traded in Europe for years, but they are relatively new for U.S. investors and markets.

“Among commodities, precious metals like gold have been widely adopted as inflationary hedges and ’safe-haven’ assets because of their traditional store of value. Investors should be aware however, that despite its precious metals designation, platinum is widely used in industrial applications and is likely to fluctuate with economic ups and downs,” Abraham Ballin for Morningstar wrote in an analyst report.”If companies using platinum in their manufacturing process produce less, platinum prices - and the ETF - are likely to suffer.”

Platinum and palladium enjoyed high prices in 2009, after a supply glut gave way to renewed demand for the metals. However, the Japanese earthquake in March ended the run.

Both platinum and palladium are used in jewelry production. Palladium is used to make white gold. Both metals are key to the auto industry, with the catalytic converter the most popular piece of equipment that uses platinum. Dental fittings, turbine blade production and cancer treatments are some of the other drivers that use platinum.

As automakers boost production and some signs of recovery are emerging in some economies, demand could once again outstrip supply, signaling an investment opportunity.

ETFs that track the metals:

  • ETFS Physical Palladium Shares (NYSEARCA:PALL): Invests in physical palladium and has $383 million in assets. The expense ratio is 0.6%. The ETF fell 19% in 2011.
  • VelocityShares 2x Palladium ETN (LPAL): This is a leveraged note that invests palladium futures contracts. The expense ratio is 1.35% and the note has $3.2 million in assets.
  • ETFS Physical Platinum Shares (NYSEARCA:PPLT): Tracks physical platinum, and also has an expense ratio of 0.6%. With $626 million in assets, the fund lost 22% last year.
  • UBS AG E-TRACS UBS Short Platinum (NYSEARCA:PTD): This fund is a short ETF and tracks the inverse of the performance of futures contracts. The expense ratio is 0.65%.

ETFS Physical Palladium Shares

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ETFS Physical Platinum Shares

Tisha Guerrero contributed to this article.