Physical Platinum ETF (PPLT), Palladium ETF (PALL) Launch

by on January 8, 2010 | Updated June 9, 2010 | ETFs Mentioned:

After weeks of anticipation, the first ETFs offering U.S. investors exposure to Platinum Group Metals (PGMs) launched on Friday, as London-based ETF Securities (ETFS) introduced the ETFS Physical Platinum Shares (PPLT) and ETFS Physical Palladium Shares (PALL). These funds bring the total number of U.S.-listed ETFs from ETFS to four, joining gold and silver ETFs launched last year.

While physically-backed platinum and palladium ETFs have been available in Europe for some time, bringing these products to market in the U.S. has been a challenge. Platinum and palladium are two of the rarest metals on earth, with total annual supplies far lower than gold and silver. Given the popularity of some precious metals ETFs — there are currently more than a dozen products with aggregate assets of almost $50 billion — some were worried that market prices could be distorted and long-term demand impacted. At least one platinum mining firm initially came out against the concept, worrying that hoarding would drive up prices in the short term and hurt long-term industrial demand.

The launch of the funds has been anticipated since late December, when the SEC approved a rule change to list and trade shares of the trusts. Word earlier this week that Susquehanna had seeded the funds with initial purchases of 100,000 shares caused speculation that a launch was imminent. As the likelihood of the launch increased, shares of platinum and palladium miners soared in anticipation of a bump in prices.

Platinum and palladium offer unique exposure. In addition to having precious metals attributes, both are used in a wide variety of industrial applications. These metals are key components in catalytic converters for automobiles, with a significant portion of global demand tied directly to the auto industry. As such, the new ETFs offer direct exposure to the industrial cycle and overall economic recovery. For more information on the price drivers and supply factors behind these metals, see the definitive guides to platinum and palladium ETF investing. ETFdb Pro members can read more about precious metals ETF options in the ETFdb Category Report (if you’re not a Pro member, sign up for a free trial or read more here).

Similar, But Different

While UBS and iPath already offer exchange-traded notes linked to platinum, the underlying assets pf PPLT will be physical platinum bullion, meaning that the ETF should track the spot price of platinum more closely than products that implement a futures-based strategy. “Unlike many other commodities, precious metals are durable, homogenous and easily stored, enabling the ETFs to be backed by allocated physical ingots or plates which have transparent pricing,” said Fred Jheon, Head of Product and Business Development with ETFS Marketing LLC. “As a result, the new physical ETFs save investors from many of the difficulties associated with purchasing precious metals such as access to physical ingots and plates in addition to having to store and insure the bullion.”

PALL is the first U.S.-listed exchange-traded product offering targeted exposure to palladium.

Explore PALL on ETFdb:

PALL and PPLT could challenge some of the records set last year by the first two product launches by ETFS. After launching the ETFS Silver Trust (SIVR) in July and Physical Swiss Gold Shares (SGOL) in September, assets quickly piled up. SGOL and SIVR topped $350 million in aggregate assets in October, and finished 2009 with $487 million.

Expense ratios for both ETFs will be 0.60%. By comparison, the iPath Dow Jones-UBS Platinum ETN (PGM) and E-TRACS UBS Long Platinum ETN (PTM) charge 0.75% and 0.65%, respectively.

Disclosure: No positions at time of writing.