Is WITE the Perfect Gold ETF Complement? - ETF News And Commentary
September 26 2012 - 6:34AM
Zacks
With the central bank easing again in what is being termed QE3,
investors are beginning to reconsider some of the holdings. After
all, with rates apparently poised to stay at underwhelming levels
for at least the next three years, it doesn’t make much sense to
push into bonds and especially low yielding short-term Treasury
securities.
This trend has made stocks, and particularly precious metals,
more attractive investments as fears over inflation and a move away
from low yields are causing investors to continue to sell off their
bond holdings. This has been especially true in the gold market, as
the price of the yellow metal saw an immediate boost after the
announcement of QE3 suggesting that some investors are ready to
make a bet on precious metals once more (see Precious Metals ETFs
101).
As always, precious metal investors are focusing in on gold for
their exposure in the space as the metal remains the most popular
for those seeking hard asset holdings. In addition to being the
most talked about metal, the product is also the least used from an
industrial perspective, a factor that makes gold an easy choice for
some investors seeking an inflation hedge in today’s easy money
environment.
Still, this strategy suggests that many investors are likely
heavily concentrated in gold while having little—if any—holdings in
the ‘white’ precious metals of platinum, palladium, and silver.
This can be potentially troubling in this market environment, as
gold has actually been the worst performing of the four in the
third quarter of 2012 while the yellow metal has only beaten out
one of its precious metal counterparts (palladium) from a
year-to-date look.
While it is true that gold has greatly outperformed over the
trailing one year period, it is pretty clear that some
diversification in the metals market can help to improve overall
investor returns in the space. Since many investors already have
gold bullion or gold ETFs like GLD,
IAU, or SGOL in their portfolios,
a look solely at the ‘white metals’ could be the way to go (see
Gold ETFs: Why Bid Ask Spreads Matter).
Investors can certainly buy up any of the three metals in
bullion form but an ETF approach can also be taken as well. In this
segment, ETF investors can look to any number of physically-backed
or futures-based ETFs that offer exposure to silver, platinum, or
palladium.
Beyond these individual ETFs, there is also a relatively new
choice which invests in all three of the white metals in a single
basket. This product, the ETF Securities White Metal Basket
Share (WITE) could thus potentially be a great way to
balance precious metal exposure without doubling down on gold (read
Zacks #1 Ranked Silver ETFs).
WITE in Focus
This ETF charges investors roughly 60 basis points a year for
its services of holding bars of silver, palladium, and platinum in
secure vaults in Europe. The trust uses the LBMA and LPPM’s rules
for Good Delivery and the metals are inspected twice a year in
order to give investors peace of mind over their precious metal
investment.
In terms of individual metal exposure, the product definitely
has a tilt towards silver, although platinum and palladium make up
double digit allocations as well. At the time of the last fact
sheet, the ETF was roughly 60% in silver, 29% in platinum, and 11%
in palladium. This translates into just under one ounce of silver,
.0010 ounces of platinum, and .008 ounces of palladium for each
share of WITE (see Platinum ETF Investing 101).
With this focus, silver clearly drives the return of the overall
fund, although the more expensive metals also have their place as
well. Still, it could provide a nice diversifier for investors
looking for more precious metal exposure without the continued
heavy influence of gold.
In fact, in the one month, QTD, and YTD time periods, WITE has
easily outperformed the major gold ETFs on the market. However, the
product has underperformed gold ETFs in the trailing one year
period, although the relatively balanced approach has helped it to
outperform at least one of the white metals no matter what in all
of the time frames studied (see The Five Best ETFs over the Past
Five Years).
Thanks to this, WITE can be considered a very interesting
compliment for the many investors who already have gold—in some
form—in their portfolios. While the product may be a bit
concentrated in silver, it still provides reasonably diversified
exposure across the three white metals of silver, platinum, and
palladium, suggesting that it could be a solid physically-backed
ETF pick to round out precious metal holdings for those that are
concerned about QE and its eventual impact on inflation.
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Follow @Eric Dutram on Twitter
Author is long IAU and gold/silver bullion.
SPDR-GOLD TRUST (GLD): ETF Research Reports
ISHARS-GOLD TR (IAU): ETF Research Reports
ETFS-GOLD TRUST (SGOL): ETF Research Reports
ETFS-WHITE METL (WITE): ETF Research Reports
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