Palladium and platinum are the best known among the six platinum group metals. Though not as popular as gold, silver and platinum, palladium is also seeing elevated interest now from the investors who are already heavily invested in gold and silver, but still want to remain exposed or increase exposure to the precious metal group. (Top Three Precious Metal Mining ETFs)
The demand for this metal comes mainly from the automotive industry, where palladium is used in catalytic converters to decrease harmful emissions. With a rebound in the automotive industry despite the global economic slowdown, the demand for this precious metal is expected to rise (Will Palladium ETF Shine Brightest This Year?) Further, more and more auto-makers are now using palladium in place of more expensive platinum, wherever possible.
Palladium is also used in other industries like electronics, dentistry and chemicals. Another area which can boost the demand for the metal is the gradual increase in demand for jewellery. Palladium is used as an alloy with platinum in jewellery and it is also used in the production of white gold. With a possible reversal in economic trends and a rise in disposable income of consumers, demand for jewellery will rise. (Time to Invest in Platinum ETFs?)
On the other hand, the supply for the metal has been going down due to worker strikes in South Africa and diminished stockpiles in Russia. Given the demand-supply imbalance, we expect the price of the metal to go up in the near-to-medium term.
The metal was down earlier this year due to its dependence on more cyclical corners of the market. But since last month the metal price got a solid boost from the supply concerns resulting from labor problems in South Africa.
Palladium price got further boost from the QE3 announcement along with all other precious metals. Continued easy money policies may support the prices of metals going forward.
Our top recommendation for investors who seek exposure to palladium ETFs, is the ETFS Physical Palladium Shares (PALL). Currently, the fund is ranked as Zacks #1 ETF Rank or ‘Strong Buy’. Thus, we expect this ETF to outperform its peers.
About 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 the investors. The aim of our models is to select the best ETFs within each risk category. We assign each ETF one out of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other ETFs with similar level of risk.
ETFS Physical Palladium Shares (PALL)
For a bullion-backed approach to palladium ETF investing, investors can look to ETFS Physical Palladium Shares. PALL is the ETF which is backed by 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 through PALL in palladium represents a cost-effective and suitable mode for investors. The transaction costs for buying and selling the shares will be much lower than purchasing, storing and insuring physical palladium for most investors (Has The Junior Gold Mining ETF Lost Its Luster?).
This ETF is designed to track the spot price of Palladium bullion. PALL is the most liquid option available in palladium ETF space, trading with volumes of 72,400 shares a day. The fund currently has 571 million in assets under management.
The expense ratio of 60 basis points also appears to be at par with other ETFs in the precious metals space. (Create a Diversified Portfolio Using ETFs).
The fund has delivered a positive return of 1.39% since the start of the year.
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