Even though money managers are not looking at platinum as a potential investment, ETF investors are still bullish on it.
Holdings in platinum ETF PPLT posted a sixth straight weekly gain as of March 17, 2017, the longest span since November 2016. About $9.2 million was invested into the fund last week. This came after U.S. money managers reduced their net long position in platinum by more than half, the most since 2006.
The metal increased in the first two months of the year, but fell in March due to higher interest rates and an expected fall in demand for the metal. Platinum is used in catalytic converters in diesel vehicles. However, automakers are shifting their focus to electric vehicles, and hence, the outlook for platinum demand is vague.
The World Platinum Investment Council forecasts that consumption will outpace supply by 120,000 ounces this year, which will mark the fifth straight year of deficit. The total supply of the metal is estimated to drop 4% in 2017 to 7.66 million ounces as the biggest producer, South Africa, which accounts for 70% of the total world output, closes its unprofitable mines.
Europe's automotive sales are growing at a slow pace amid the political uncertainty clouding the region. It is the largest user of platinum in automobiles. China, the biggest user of the metal in jewelry and electronics, has seen higher industrial sales and economic output in the first two months of the year.
The overall outlook for platinum remains mixed. Let's discuss the fund characteristics of the most popular platinum ETF:
ETFS Physical Platinum Shares ETF (NYSEARCA:PPLT)
This fund is designed to track the spot price of the platinum bullion. It is the only pure play investors can get on the metal, beyond buying shares of platinum miners or buying futures contracts.
The fund has AUM of $536 million and charges 60 basis points as fees per year. It generated 0.77% in the past one year and 6.65% in the year-to-date time frame (as of March 22, 2017). PPLT currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
There are a few other ETNs available in the space. These include the UBS ETRACS CMCI Long Platinum Total Return ETN (NYSEARCA:PTM) and the iPath DJ UBS Platinum Trust Sub-Index ETN (NYSEARCA:PGM). However, these are not that popular, as witnessed by their respective AUMs of $20.2 million and $7.2 million.
Even though there were high inflows into the platinum ETF, there is high uncertainty regarding the future demand for the metal. Therefore, we believe it is best to remain on the sidelines for now.