No Gold? Top 10 Precious Metals ETPs In 2012

by: Christian Magoon

Precious metals ETPs have become one of the most convenient ways to access this unique asset sleeve. So who are the top performers year to date? Before we dive into the details, let's examine the precious metals ETP top 10 list compiled via Index Universe's data tool.

Top ETF and ETN Products: Precious Metals YTD 3/26/2012

Across the top 10 ETPs, the theme is clear; silver and platinum have been the metals to own. Seven of the top 10 ETPs are either silver (4) or platinum (3).

The remaining three ETPs are baskets of precious metals. When analyzed, each has material exposure to platinum and/or silver. Here's the breakdown of the precious metals allocation within WITE (NYSEARCA:WITE), GLTR (NYSEARCA:GLTR) and JJP. (NYSEARCA:JJP)

JJP, the worst performer of the top 10 list, suffered from its large exposure to gold and no platinum allocation. WITE, the best performing basket ETP, is predictably the only product without gold exposure.

ETFs Versus ETNs

Six of the top 10 precious metals performers are ETF vehicles versus ETNs. The ETF vehicle allows the investor to own shares backed by physical holdings, which are then stored in a vault and regularly audited. This process adds costs that are subtracted from the asset's return. The ETN vehicle foregoes physical holdings, storage and auditing costs, and instead is a debt obligation issued by a bank to deliver the return of the precious metal investment. This introduces credit risk to the investor however.

Platinum Index Matters

The top performing ETP is the ETRACS CMCI Long Platinum Total Return ETN (NYSEARCA:PTM) at 31%. The next three top performers are silver focused - DBS (NYSEARCA:DBS), USV (NYSEARCA:USV) and SLV (NYSEARCA:SLV). What becomes interesting is that the next platinum product appears, the iPath Dow Jones-UBS Platinum Metals Total Return ETN (NYSEARCA:PGM), at spot number five. PGM is over 900bps behind market leader PTM. Why?

The difference in performance is likely due to underlying index methodology. While PTM targets its futures contract exposure at a constant three months, PGM doesn't seem to have that mandate. Perhaps it buys the front month contract only, which could erode value in a bullish platinum market like we have experienced. These details aren't clear to me from the PGM fact card or prospectus.

What is clear is that PGM's index does take into account a certain amount of Treasury income - which doesn't add a lot right now to total returns. Whatever the case, there has been an interesting disconnect between the two products since the beginning of the year after a fairly close relationship over the previous nine months. Here's the one year chart from Yahoo Finance comparing PTM and PGM.

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Popular And Not So Popular Winners

Looking at the Top 10 precious metals performers shows a few popular products in terms of AUM and others that remain undiscovered. SLV is the second largest precious metals ETP in AUM behind the SPDR Gold Trust (NYSEARCA:GLD). SLV is the fourth best performer in the category. Incidentally, GLD ranks 17th out of 20 precious metals ETPs in terms of performance.

Physically-backed commodity ETF Sponsor, ETF Securities, is the big winner in performance and AUM. They not only have four ETFs in the top 10 performers (WITE, GLTR, PPLT, SIVR) but those four ETFs are all in the top 10 largest precious metals ETPs by AUM. Kudos to ETF Securities and their dominate start to the year.

On the opposite side of the equation, both the PTM and PGM platinum ETNs are in the top five performers, but in the 16th and 17th, AUM spots out of 20 ETPs. Either the platinum story hasn't resonated yet or no one has actually heard the story. Either way, be prepared to hear more about platinum and silver going forward. Here's the top 10 precious metals ETPs ranked by high to low AUM from Index Universe.

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Precious metals ETPs are clearly gaining ground as a mainstream asset allocation vehicle. With well over $100 billion of investor assets, this ETP subset seems ripe for further growth based on convenience, performance and asset class characteristics.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.