What’s In My Precious Metal Basket ETF?

by on March 14, 2013 | ETFs Mentioned:

Gold is certainly the most popular precious metal to invest in. ETFs are available that cover every sector of this enormous market, but some investors may wish to achieve more broad-based exposure to precious metals. Few corners of the exchange-traded product world have seen more explosive growth in recent years than precious metals, as investors have embraced these vehicles as an incredibly efficient way to access assets that have turned in some monster performance results in recent years. But even then, these basket funds often have a heavier hand in gold than investors realize [Download How To Pick The Right ETF Every Time].

GoldWhile gold prices are largely driven by “safe haven” demand and minimal industrial use, silver serves as a key metal in the electronics industry, and it too can take on “safe haven” appeal during times of panic in the market. Silver prices tend to be more volatile than gold however, which may turn away some risk-averse investors and lure more aggressive ones. Platinum and palladium are also vital resources for the electronics industry, as well as dentistry, medicine, automobile industry and numerous other chemical applications [check out the Precious Metals ETFs: Beyond Gold].

Investors looking for a more balanced view of the precious metals market should explore the holdings of each of the five Broad Precious Metal ETFs to make sure the exposure truly is broad.

DBP, JJP and BLNG: Mostly Gold

PowerShares DB Precious Metals Fund (DBP, A-) is one of the most popular “basket portfolio” options, with total assets under management coming in at $300 million. DBP’s portfolio composition hardly reflects its title, with 80% of the fund held in gold and the remaining 20% in silver funds. This is also the case with iPath’s Precious Metals Total Return ETN  (JJP, C) and their Pure Beta Precious Metal Fund (BLNG, C) with each holding more than 75% of their funds in gold [see 10 Questions About ETFs You've Been Too Afraid To Ask].

GLTR and RGRP: A Better Basket

Unlike the basket funds mentioned above,  ETF Securities Physical Precious Metal Basket Shares (GLTR, A-) and RBS’s Rogers Enhanced Precious Metals ETN (RGRP, n/a) offer much more variety in their holdings. Both include  platinum and palladium, as spreading out exposure across multiple metals can serve to reduce commodity-specific risk and in turn smooth out overall portfolio volatility. These precious metal funds still have a strong allocation to gold, each around 50%, but this variation in holdings could offer a strong source of potentially uncorrelated returns [for other asset allocation options, check out How To Hedge With ETFs].

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Disclosure: No positions at time of writing.