Precious metals have had an amazing journey this year on a flight to safety amid global growth concerns, as the Brexit vote and the U.S. presidential elections led to volatility. Now that market conditions are witnessing a reversal, palladium is clearly emerging as a winner in the precious metals space, thanks to its industrial uses. This makes it a favorite with investors looking to play the rising economy.
In fact, last month, the only pure-play on the metal - ETFS Physical Palladium Shares (NYSEARCA:PALL) - clearly outperformed the rest of the precious metal ETFs in the space, namely, gold ETF SPDR Gold Trust (NYSEARCA:GLD), platinum ETF ETFS Physical Platinum Shares (NYSEARCA:PPLT) and silver ETF ETFS Physical Silver Trust (NYSEARCA:SIVR). PALL was up 17.2% in the last one month (as of November 21, 2016). GLD, PPLT and SIVR were down 4.34%, up 0.3% and down 5.4%, respectively.
What's Driving Palladium's Rally
The majority of palladium is used in the automotive industry for manufacturing catalytic converters to clean exhaust emissions. Although auto sales were disappointing in the last three consecutive quarters, there is a new-found optimism in the sector post U.S. elections. President-elect Donald Trump plans to introduce a burst of stimulus with tax cuts and infrastructure spending package. Speculation is rife that business investments will a get a new lifeline now. This could benefit automakers and the exclusive auto ETF, First Trust NASDAQ Global Auto Index (NASDAQ:CARZ) could be in focus the days ahead.
Moreover, supply shortages are expected to continue into next year. The palladium market is expected to post a deficit of 651,000 troy ounces this year and another shortfall in 2017. This is primarily due to rising autocatalyst demand.
In a nutshell, the global supply outlook appears fragile at the current level, making the metal an intriguing option for investors. Below we have highlighted the only pure-play on the metal - PALL - in detail.
For a bullion-backed approach to palladium ETF investing, investors can look to ETF Securities Physical Palladium Shares or PALL. The ETF holds the metal in the form of bullion, or ingots. The metal is safely stored in London and Zürich on behalf of the custodian, JPMorgan Chase Bank (NYSE:JPM).
Investing through PALL in palladium represents a cost-effective and suitable mode for investors. The transaction costs for buying and selling the shares will be much lower than purchasing, storing and insuring physical palladium for most investors.
This ETF is designed to track the spot price of Palladium bullion and has amassed about $199.8 million in assets. The expense ratio of 60 basis points appears reasonable in the precious metals ETF space. The fund trades in paltry volumes of less than 35,000 shares on an average daily basis.
The fund has a Zacks ETF Rank of 1 or 'Strong Buy' rating. Investors should also note that PALL has a positive weighted alpha of 37.40. A positive alpha indicates that these surging products can be exercised a little further.