Exchange-traded funds (ETFs) have become a popular way of getting exposure to various markets and in this article we will look at ETFs that give investors exposure to the price of the metal commodity plantinum.

Platinum ETFs can strive to track the price of platinum in various ways, e.g. through physical holdings and derivative investments. This way, you can get exposure to platinum without actually having to own platinum yourself. For many, using an ETF offers better cost-effectiveness than personally trading in platinum derivatives.

Physical and synthetic ETFs

Both physical and synthetic ETFs are available for platinum exposure.

• With a physical platinum ETF, each fund share represents a certain quantity of platinum stored in a secure vault.
• With a synthetic platinum ETF, there is no physical platinum. Instead, financial instruments – such as platinum futures – are utilized.

Tracking error

Before you invest in an ETF, always check the tracking error. Even though the fund managers strive for the ETF to mimic the value of platinum, they might not always get it right. A funds tracking error shows how much error there is in the adherance to the benchmark – in this case, the price of platinum.

As always, past performance is not any guarantee of what the future will bring, but it can be a strong indication, especially when analysed in conjunction with other facts about the ETF.

Expense ratio

The expense ratio for an ETF shows how much you would pay per year, expressed as a percentage of your investment size.

Example: You have $10,000 invested in a platinum ETF and the expense ratio is 0.05%. You will pay the fund $5 per year.

Not an income investment

In general, platinum ETFs will not provide a steady income while you own the fund shares. An equity ETF can have dividends to pay out and a bond ETF can have interest payments to pass on to the fund share holders, but a classic platinum ETF works differently.

Platinum ETFs are chiefly used by investors who expect to make a profit when they sell their fund shares in the future; they do not expect an income stream from the ETF while still owning the fund shares. Platinum ETFs are also popular for hedging and, in some circumstances, as a safer haven to park money in when other markets are more volatile.

Why have platinum ETFs become popular?

• They make it easy to get exposure to the platinum price, without actually having to own platinum. Typically, transaction costs will be much lower with an ETF. If this is appealing to you, remember that an ETF is not the only method; there are also derivates based on the platinum price that you may wish to consider.
• ETF is short for exchange-traded fund. The fund shares are listed on an exchange and traded throughout the trading day. You can enter and exit positions more quickly than with fund shares in a mutual fund. If a quick exit is an important point for you, make sure you pick an ETF for which the liquidity is high. (Of course, it is not possible to know for certain if it will remain high.)

Platinum for investors

More fluctuations than for gold and silver

The situation for platinum is complex. It is known to sometimes move differently than many other commodities. It also known for having a price that fluctuates significantly, often more than gold and silver. If this is not suitable for your investment style and preferences, it is best to stay away from platinum. Some investors who are enchanted by platinum’s ability to not be dragged down when other major commodities are falling, eventually realize that they actually hate being exposed to platinum because the volatility wreak havoc with their nerves.

Platinum is considerably more rare than gold, and is used on a grander scale industrially. Its price has historical been more sensitive to industrial demand and supply disruptions, and the volatility has attracted short-term speculators. Gold is generally regarded as a superior alternative to investors lookin for a safe-haven.

Demand for platinum

A lot of the demand for platinum comes from the automotive industry, and especially for catalytic convertors. Therefore, an increase in automotive sales – or even just a positive forecast – tend to bring the price of platinum up.

The price of palladium also impacts the price of platinum. They are both platinum group metals and have similar caracteristics. If the price of palladium reaches a certain level, automotive manufacturers can decide to switch to platinum instead. Platinum is usually more expensive than palladium, but is also more efficient in certain products, which has an effect on the decision to switch.

Supply

To understand price movements, looking at demand is not enough – we must also consider supply.

Platinum enters the market from two main sources: mining and recycling.

Platinum is mined from ore deposits, often alongside nickel and copper. The main platinum mining countries are South Africa, Zimbabwe and Russia. All three are considered countries with high political risk that can impact the supply of platinum. There was for instance a period in 2008 when a shortage of electricity in South Africa caused platinum prices to rise dramatically.

Hedging

If we look at historical price data, the platinum price has often moved differently than many other commodities, and it has therefore became a popular hedge against such commodities. It is also used as a general hedge against market volatility on certain other markets.

Examples of well-known platinum ETFs

abrdn Physical Platinum Shares ETF (PPLT)

At the time of writing, this is the largest platinum ETF in the world and holds around 920 million USD in assets. The expense ratio is 0.60%. It is traded on NYSE.

GraniteShares Platinum Trust (PLTM)

This is the second-largest platinum ETF and has almost as much in assets as the PPLT. At the time of writing, the expense ratio is 0.50%. It is traded on NYSE.

Owning and storing physical platinum

Investors who want to go another route and opt for buying and storing physical platinum typically go for standardized platinum coins and platinum bars. Such investments are usually carried out by investors who plan on holding on to the platinum for a long time; it is not really suitable for daytrading or swingtrading and transaction costs are high.

If you want to purchase and hold on to physical platinum, it is important to consider factors such as any transportation costs, insurance costs and storage costs. There is the risk of theft, tampering and damage. You also need to consider how you will put the physical platinum on the market when you decide to sell.