Commodities: Precious Metals
The Precious Metals Segment covers ETPs that track or hold baskets of precious metals. It is dominated, like our benchmark, by portfolios consisting entirely of a heavy allocation to gold
“ETPs that track or hold baskets of precious metals” and roughly 15-25% to silver. RGRP, WITE and GLTR have significant allocations to platinum and palladium and go beyond the scope of our benchmark in doing so.
The segment is very top-heavy, with over 90% of assets in just two funds, DBP and GLTR. The concentration of assets in these two products means GLTR and DBP are far and away the most liquid choices in the segment. The gap between the very reasonable spreads on these products and those for their competitors is therefore wide.
That said, the remaining funds exist in two vastly different liquidity tiers. WITE can at least be traded on a daily basis even if its spreads require limit orders. BLNG, JJP and RGRP don't trade most days, and spreads are unpredictable.
Once you get beyond liquidity, there are still the matters of exposure and holding cost to contend with. DBP stands out, as it—like our benchmark—covers only gold and silver and in similar proportions. The downside is DBP charges a middling fee. JJP and BLNG also exclusively hold gold and silver, but in different amounts.
If your goal is to have exposure to all four precious metals, however, you're going to want GLTR, as it is the only fund in the segment to do so with reasonable liquidity for larger investors, and at the segment's cheapest price to boot. RGRP's 95 bp expense ratio is an expensive trade-off for the same broad basket. Finally, there is WITE, which only includes the three white metals—platinum, palladium and silver—at a cost of just 60 bps. (Insight updated 05/26/17)
All Funds (5)
GLTR $319.93 M 319933450 Broad Basket
DBP $143.22 M 143220194.34512 Most Liquid
BLNG $743.51 K 743510.5891 High closure risk
JJP $4.33 M 4328417.19 Front-Month
WITE $15.92 M 15918600 Physical Silver, Platinum and Palladium
ETF.com Grade as 05/18/17
Commodities: Precious Metals
ETF.com Efficiency Insight
Cost matters in the precious metals space as anywhere else, but structure is also of great importance. The tax consequences of the different structures in the segment—grantor trusts,
“The tax consequences of the different structures in the segment vary greatly” commodities pools and ETNs—vary greatly. As such, it is important that investors understand the differences between them before jumping in.
The two grantor trusts, GLTR and WITE, are the clear front-runners here, as they carry the lowest expense ratios of the segment (60 bps) and offer nearly perfect tracking net of fees thanks to their physical custody of the precious metals they cover. It's worth noting that the funds themselves don't actually hold any physical metal; rather, they hold ETFs that hold the physical metals, which makes both products de facto "fund of funds." GLTR carries low closure risk thanks to its large, stable asset base. WITE has a small AUM which leads to elevated closure risk. As grantor trusts, each will be taxed at the collectibles rate, which is generally higher than the capital gains rate.
The two iPath ETNs, JJP and BLNG, track an index of futures as opposed to holding the metal themselves. This presents a more palatable tax situation (ETNs are taxed at capital gains rates), but also exposes the holder to the credit risk of the issuer—in this case, Barclays Bank. The 85 bp fee on BLNG is the segment's second highest, while the fee charged by JJP is at the segment average. Both of these fees are variable and path dependent, however, so the true holding cost can vary greatly over different holding periods. RGRP is also structured as an ETN, but its 95 bp fee is the highest in the segment and, like BLNG, its paltry asset tally puts it at high risk of closure.
DBP, which is the segment's most popular product, is the lone commodities pool in the segment. The fund holds futures contracts on gold and silver, so you'll be taxed at a blended rate and receive a K-1 in April. Gains and losses are also marked to market at year-end as if the underlying contracts were sold, so you could face a hefty tax bill regardless of whether you're actually in the black. (Insight updated 05/26/17)
ETF.com Tradability Insight
In Tradability, DBP and GLTR see excellent volume and the tightest spread in the segment.
WITE can at least be traded most days, but limit orders are strongly advised. The fund rates
“In Tradability, DBP reigns supreme” well in our block liquidity measure, so those trading in size should get the best deal here.
BLNG, JJP and RGRP, on the other hand, should be avoided by anyone trading less than a full creation unit. Most days, not a single share of these funds is exchanged, and spreads are prohibitively wide. As a result, liquidity providers are unlikely to fill odd lots without a hefty fee, as the risk of holding the excess inventory on their books is too great given the dearth of turnover in their shares. (Insight updated 05/26/17)
ETF.com Fit Insight
Fit is a tricky score for this segment, as the benchmark only holds two types of metals—gold and silver—leaving the funds with broader exposure with some very low scores that
“Fit is very much in the eye of the beholder here. ” are perhaps unjustified given the coverage they offer. Fit is therefore very much in the eye of the beholder here.
Our segment benchmark has a gold-to-silver split of 88/12, but all the funds dedicated to just those two metals overweight to silver some degree. DBP allocates 19% to silver compared with 23-24% in BLNG and JJP.
The three products also vary in the way they capture the two metals. DBP and BLNG both try for an optimized approach in an attempt to mitigate contango, while JJP follows a vanilla front-month strategy. It remains to be seen if the optimized strategies really are better, as all three funds have underperformed our benchmark to a similar degree over the past year.
RGRP, WITE and GLTR are really the standouts, as their allocations to platinum and palladium leave them significantly out of sync with the benchmark index. The difference is RGRP tracks an optimized basket of futures on the 4 metals, while neither GLTR nor WITE actually holds futures contracts at all, instead holding the physical metal vis-à-vis single-metal ETFs like SIVR and PPLT. WITE, in contrast to GLTR and RGRP, excludes gold entirely, so it's a great bet for those who don't want gold or own it in another fashion. (Insight updated 05/26/17)