In my previous post here, I have analyzed the fundamental parameters of platinum -- demand, supply and reserves -- and recommended investing in this important precious metal with a long-term perspective. In this article, I will compare the different ways to invest in platinum:
- Platinum futures contracts
- Platinum ETFs and ETN
- Shares of platinum companies
Data: TradeStation Group, Inc. Chart: Arie Goren
Data: TradeStation Group, Inc., U.S. Bureau of Labor Statistics Chart: Arie Goren
First, let us compare the historical return of the different investment instruments. The table below presents the historical price appreciation and the Compound Annual Growth Rate (CAGR) between May 31, 1999 and September 12, 2012, for the following investment instruments: platinum continuous leading future contract, platinum continuous futures contract adjusted for rollover of the expiring contract, and the stock of Anglo American PLC (AAUKY.PK), which also considers the dividend distribution. The British company Anglo American PLC is the world's largest producer of platinum. The platinum ETFs and ETN did not yet exist in 1999, so this calculation does not take them into account. The adjusted-for-dividends stock prices were extracted from Yahoo Finance, and the data for the continuous contracts were taken from TradeStation Group, Inc.:
In that period, investing in platinum futures contract has turned out very profitable, holding the shares of Anglo American has given also nice return 146.8% or 7.04% annually, but not as high as the futures contract. The appreciation of the unadjusted futures contract was 350.2% or 11.99% annually, but because long term investors in futures contracts should roll over expiring contracts, and due to the contango effect, the return was little less: 328.4% or 11.57% annually, without taking into account trade commissions (a comprehensive explanation about the influence of contango and backwardation on long-term investment in commodities can be found in my article here).
In order to include the platinum ETF, ETFS Physical Platinum Shares (PPLT), which was launched on January 2010 and iPath DJ-UBS Platinum TR Sub-Idx ETN (PGM) and UBS E-TRACS Long Platinum TR ETN (PTM), an identical study was performed on a much shorter period, from January 29, 2010 to September 12, 2012. The stock of IMPALA PLAT SP ADR (IMPUF.PK) was also included in this study, even though it could not be included in the first study, since stock prices from Yahoo Finance for this company are only available since December 2002. The South African company Impala Platinum is the world's second largest producer of platinum. The results are shown in the table below.
During that period, the return of the adjusted continuous futures contract was 5.8%, but the return of the platinum companies was negative. The return of Anglo American was -13.0%, and the return of Impala Platinum was even worse -24.1%. The appreciation of the ETF for physical platinum PPLT was 7.9%, better than the appreciation of the adjusted continuous futures contract, and better than the appreciation of the platinum ETN PGM and the platinum ETF PTM.
Investing in the ETF for physical platinum PPLT seems to be the best choice, as it has given better return than the adjusted continuous futures contract. Because the fund is investing in physical platinum, there is no concern of loss due to contango effect.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.