Vogelzang: PPLT A Nice Fit

November 15, 2013

Whether platinum is beauty or beast, owning PPLT is a solid way to get precious metals exposure, Vogelzang says.

This article is part of a regular series of thought-leadership pieces from some of the more-influential ETF strategists in the money management industry. Today’s article features Michael Vogelzang, president and chief investment officer of Boston-based Boston Advisors, LLC.

Platinum, the “other” gold, has outperformed its precious metal brethren over the last six months, as investors have come to recognize some of its unique characteristics. At Boston Advisors, we look at each investment with three lenses—fundamental, sentiment and price—seeing both the investment opportunity and challenge from different angles.

In this article, we apply those lenses to platinum and discuss its role in a portfolio, focusing ultimately on the sensibleness of owning the ETFS Physical Platinum Shares ETF (PPLT | A-100), the exchange-traded fund market’s only physical platinum ETF.

Precious Metals Performance: 6 Months Ending 10/31/13

Precious Metals

Source: Bloomberg

Fundamental Lens

We begin by identifying the fundamental case for platinum—supply and demand, valuation, thematic underpinnings, among other basics. Fundamentally, platinum has a beauty-and-the-beast profile. The beauty is, of course, its precious metal qualities.

  • Recently, demand for platinum jewelry has been steadily rising in many countries around the globe. China represents a good portion of that demand.
  • Platinum, along with palladium, is used extensively in auto-emission technology. As a result, demand for platinum has been rising with the post-crash recovery of the global automobile market. As the long-term story for better emission control around the globe continues to improve, particularly in the larger emerging markets countries, we expect industrial demand to remain strong.

Platinum Demand

0_PlatinumDemand

The beast surfaces in platinum’s supply story.

  • Approximately 70 percent of platinum is mined within the platinum belt of South Africa. Labor relations have been fractious for years, and could worsen in the near term. Wage demands, intimidation and violence have strained relations, and more of the same is expected, as the major companies battle unions for control over the profitability of platinum mining. While supplies have not yet been significantly crimped, and companies have stashed larger-than-normal stockpiles in case of a full work stoppage, the potential for longer-term shortages does exist. This could potentially put upward pressure on prices.

 

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