Platinum is difficult to buy and keep physically. However, investors can buy exchange-traded funds (ETFs ) that specialize in platinum. In addition to being a rare precious metal, there is great demand for platinum because it is used in car parts and electrical circuitry and even has some medical uses. Of course, platinum jewelry is also popular.
Platinum has been experiencing a price decline in recent years, but several events may boost platinum in the near future. Many platinum mines have closed and this has limited supply. If demand continues to be strong, the imbalance between supply and demand could mean a rise in price for the precious metal. Also, Asian financial institutions have decided to increase their buying of platinum to mitigate volatility in the equity markets. (See also: These Charts Suggest Now Is the Time to Buy Platinum.)
We have selected the top three platinum ETFs based on year-to-date returns as of December 31, 2016. We also looked for a variety of approaches for investing in platinum to give investors broader choices.
ETFs Physical Platinum (PPLT)
PPLT is the strongest choice for gaining exposure to the price of physical platinum. Buying shares in this ETF gives the investor nearly the same return as actual platinum would, minus fund expenses. Note that the expense ratio is 0.60%.
Investors tend to use PPLT to avoid exposure to the futures market while gaining exposure to platinum. The fund buys and holds platinum bars and stores them in vaults.
PPLT is the biggest platinum fund by trading volume. It does not pay a dividend because it only holds platinum bullion.
• Avg. Volume: 55,563
• Net Assets: $481.02 million
• Yield: 0.00%
• YTD Return: 1.88%
• Expense Ratio: 0.60%
• Inception Date: January 1, 2010
• Since Inception: -7.51%
UBS E-Tracs CMCI Long Platinum Total Return ETN (PTM)
PTM is actually an exchange-traded note (ETN) that gives investors exposure to the platinum futures markets. It attempts to mimic the UBS Bloomberg CMCI Platinum Total Return Index. The futures contracts have a maturity of three months. PTM holds a basket of futures contracts with varying expiration months to mitigate risk.
PTM is not very liquid because it trades around 10,000 shares per day. Note that an ETN is a debt security, so anyone interested in this fund should examine the creditworthiness of the entity issuing the note.
• Avg. Volume: 10,569
• Net Assets: $19.16 million
• Yield: 0.00%
• YTD Return: 1.37%
• Expense Ratio: 0.65%
• Inception Date: May 8, 2008
• Since Inception: -10.07%
iPath Bloomberg Platinum Subindex Total Return (PGM)
PGM offers a different approach to the platinum futures market. It tracks the Bloomberg Platinum Sub-index Total Return. This index holds a futures contract on platinum in the nearest contract month. It may also hold U.S. Treasury bills.
The low average volume indicates that PGM is not very liquid.
• Avg. Volume: 598
• Net Assets: $6.89 million
• Yield: 0.00%
• YTD Return: 0.85%
• Expense Ratio: 0.75%
• Inception Date: June 24, 2008
• Since Inception: -10.43%
Bottom Line
PGM and PTM do not create new shares, primarily because they are ETNs. This can lead to overvaluation of these two entities. Creating new shares tends to reduce the price of an ETF, but since ETNs seldom issue new shares, there are no new issues to counter the rise in share prices. However, investors who are interested in platinum can buy existing shares of these two ETNs.
PPLT is an actual ETF with numerous shares available. Clearly, the opportunities here are for those who think the limited supply in the face of steady or increasing demand will raise the price of this commodity. (See also: A Beginner's Guide To Precious Metals.)
Buying into platinum would most certainly be considered speculative at this point, so this ETF and the ETNs might not be suitable for the major portion of investment assets an investor may have. A careful allocation strategy, however, could make an investment in platinum a reasonable risk.
