Platinum is one of the most popular niche commodities and is increasingly finding its way into investor portfolios. However, the price performance in 2012 wasn’t that great, as auto sales and jewelry demand slumped.
But heading into 2013, the outlook for platinum prices appears much better. The reason is that the metal is going through a supply deficit attributable to the labor dispute in South Africa and other factors in this important producing nation which makes running many mines unprofitable (Palladium and Platinum ETFs to Soar?).
Stockpiles from another big producer of the metal, Russia, are also diminishing, leading to a further deficit. Platinum production outages may result in the highest supply deficit since 2000.
On the demand side, the automotive industry is a big driver of usage in the platinum market. The metal is used specifically in catalytic converters to manage vehicle emissions. With a rebound in the auto industry, the demand for the metal remains steady.
With the need for platinum rising in the auto industry and supply at an all-time low, the price of the metal is primed to shoot up going forward. Given the favorable dynamics, this could be the right time to invest in the metal and doing it through ETFs makes it even more lucrative thanks to low bid/ask spreads and minimal expense ratios. (Strong Auto Sales: Good News for Metal ETFs?).
In fact, platinum related exchange traded funds have been outperforming gold ETFs and gaining momentum on the back of an improved economic outlook. Investors are now shifting their asset base from safe havens like gold to riskier assets such as platinum (Gold ETFs: Is the Sell-Off Overdone?).
In such a scenario, investors looking to capitalize on the outperformance of the metal can consider investing in Zacks top ranked ETFS Physical Platinum Shares ETF (PPLT - ETF report).
PPLT is a Zacks #2 Rank (‘Buy’) ETF. Thus, we expect this ETF to outperform its peers.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely, Low, Medium, or High.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio with the Platinum ETF, we have taken a closer look at the top ranked PPLT below:
ETFS Physical Platinum Shares (PPLT)
For a bullion-backed approach to platinum ETF investing, investors can look to ETFS Physical Platinum Shares. PPLT is the only ETF which is backed by the physical metal and holds the metal in the form of bullion or ingots. The metal is securely stored in London and Zürich on behalf of the custodian, JP Morgan Chase Bank.
Investing in platinum through PPLT represents a cost-effective and suitable mode for investors. It is expected that the transaction costs for buying and selling the shares will be lower than purchasing, storing and insuring physical platinum for most investors (Invest Like Morgan Stanley with These 5 Commodity ETFs).
This ETF is designed to track the spot price of platinum bullion. PPLT is by far the most liquid option available in the platinum ETF investing world, trading with volumes of 75,100 a day. The fund trades with assets under management of $842.6 million.
The expense ratio of 0.60 basis points also appears to be much lower than other ETFs in the space despite the relatively greater costs associated with physically storing the metal.
While the metal has had a rocky road over the past year, it has stabilized in 2013 and it is now flat for the YTD period. And if the current trends in the important automotive and industrial markets continue to take shape, this could put PPLT into the green and make 2013 a great year to be invested in platinum ETFs.
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