Can Platinum ETFs Retain Their Sheen?

Precious metal ETFs have been in the spotlight lately and the debate on the use of palladium or platinum in the auto industry continues. The surge in palladium prices is definitely not helping auto makers who use palladium in the catalytic converters of their vehicles.

What’s Driving Prices?

The auto industry generates maximum demand for these two metals, leaving the metals exposed to the dynamics of the auto industry. U.S. auto sales fell 2% to 17.2 million in 2017 compared with 17.55 million in the previous year.

The primary factor driving demand for palladium was its lower price compared to platinum. The increased appeal of palladium over platinum as a metal to be used in catalytic converters of gasoline vehicles has driven demand. Platinum is more widely used in diesel vehicles, which has fallen out of favor lately, owing to the 2015 Volkswagen (DE:VOWG_p) emissions scandal.

However, palladium prices have been rallying since 2017 and have surpassed platinum prices for the first time in almost 17 years. Palladium hit a high of $1138 this week, while platinum was hovering around $1003 per ounce. Although demand for catalytic converters is high, manufacturers might give in to the skyrocketing palladium prices and find a way to substitute it with platinum.

Capital Economics analyst Simona Gambarini said to Reuters, “Certainly carmakers who can use both will try to use more platinum,” adding, “For many purposes, it’s actually a better catalyst, it’s just always been more expensive.”

Per a Business Insider article, the global gems and jewelry market is expected to grow 4.73% in the 2017-22 period. Moreover, platinum’s relatively cheap price is increasing its appeal as a substitute for gold in the gems and jewelry markets.

Let us now discuss a few ETFs focused on providing exposure to the space (see all Precious Metals ETFs here).

ETFS Physical Platinum (NYSE:PPLT) Shares ETF 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 $522.6 million and charges 60 basis points in fee per year. It has returned 2.5% year to date and 4.1% in a year (as of Dec 14, 2017). As such, PPLT carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

E-TRACS UBS Bloomberg CMCITR Long Platinum ETN (TO:PTM)

This fund is designed to track the price of platinum through a basket of futures contracts. The futures contracts are targeted for a constant maturity of three months.

The fund has AUM of $11.1 million and charges 65 basis points in fee per year. It has returned 7.7% year to date and 1.1% in a year (as of Jan 16, 2018). As such, PTM carries a Zacks ETF Rank #3 with a High risk outlook.

iPath Dow Jones-UBS Platinum ETN (AX:PGM)

This fund is designed to track the price of platinum through a basket of futures contracts.

The fund has AUM of $5.4 million and charges 75 basis points in fee per year. It has returned 7.7% year to date but lost 0.6% in a year (as of Jan 16, 2018). As such, PGM carries a Zacks ETF Rank #3 with a High risk outlook.

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