Beyond GLD: Three Alternative Precious Metal ETFs

by on September 16, 2010 | ETFs Mentioned:

As the American economy continues to tread water, many investors have grown increasingly concerned about a double-dip recession. This has pushed dollars into the bond markets which has caused prices to soar as investors attempt to protect themselves from any future economic storms. However, with yields now approaching record lows, investors have started to rethink this move into bonds, especially considering the dire fiscal position that most governments find themselves in. These worries over a sovereign debt crisis have caused many to rethink their portfolio allocations and reconsider a larger allocation to what some call the ultimate safe-haven; gold.

Gold prices have been soaring higher as of late as fears have escalated across the world; an ounce of the yellow metal is now fetching over $1,275, an all-time high. This price also represents a premium of over 27% from the metal’s 52 week low in early October of 2009 when gold was briefly trading below the $1,000/oz. mark. While investors can always buy gold bullion or coins, many have also diversified their holdings into precious metal ETFs to take advantage of the low costs and liquidity which are currently unmatched in the gold market, especially for smaller investors. Most investors have gravitated towards three gold funds which dominate the space; SPDR Gold Shares (GLD), iShares Gold Trust (IAU), and the ETF Securities Physical Swiss Gold Shares (SGOL) which combine to make up over $63 billion in assets.

Currently, there are 15 ETFs in the Precious Metals ETFdb Category and while the vast majority of them target gold, there are several which offer exposure to the rest of the precious metals group; silver, palladium, and platinum. These metals have not received the same level of attention or interest from investors and although they generally have more industrial applications they can make for excellent protectors against future market uncertainty or turmoil as well. Below we profile three easy ways to gain exposure to these metals through ETFs:

iShares Silver Trust (SLV)

This iShares fund is the most popular non-gold ETF in the category, having amassed over $6 billion in assets and average daily volume of close to 7 million shares. SLV has also outperformed its gold ETF counterparts, posting a gain of 23.1% so far in 2010 compared to a 16.1% gain for GLD. The fund charges an expense ratio of fifty basis points and maintains a correlation of just 0.39 with the S&P 500 suggesting that the fund could provide valuable diversification benefits to some investors [also read Seven Reasons Why Silver Could Soar].

ETF Securities Physical Platinum Shares (PPLT)

ETF Securities is quickly becoming famous for its novel approach to precious metals investing; it backs all of its funds will bullion located in secure vaults in both Zurich and London. The company also posts the bar numbers daily on the website and the holdings are audited twice a year by Inspectorate International, an independent metal assayer. However, platinum has lagged behind other precious metals so far in 2010 posting a gain of just 1% since the beginning of the year [also read Ten Most Successful New ETFs Of 2010].

ETF Securities Physical Palladium Shares (PALL)

Arguably the least well known of the four precious metals, palladium has seen its fortunes rise in recent weeks to the point where PALL is now the best performing ETF in the category, having posted a gain of 26.7% since the start of the year. Many are citing robust Chinese car demand as one of the key reasons for the metal’s surge and look for this trend to continue well into this decade. “A lot of people are looking at platinum and palladium as a medium- to longer-term strategic play, particularly on the auto-sector market in China” said Daniel Wills, senior research analyst with ETF Securities. The fund charges a relatively high expense ratio of 0.60% but maintains an ultra-low beta of just 0.12 [see PALL Plunges, Screaming Buy?].

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Disclosure: Eric is long silver bullion, gold bullion, and IAU.