Industrial Metals Offer Chance To Tap Global Infrastructure Growth
They may lack the glitz of silver and gold, but industrial metals are a key ingredient in the modernization of the developing world.
Overshadowed by the historic rise of gold bullion over $1,900 an ounce and the tripling in silver prices in less than three years, copper, palladium and other metals have also seen sharp increases.
Those gains are expected to continue as rising long-term demand for raw materials meets head-on with supply constraints.
“A lot of the attraction of industrial metals today is emerging market demand,’’ says Joe Foster, gold analyst for the Van Eck Global Hard Assets Fund, which invests in metals and other commodities.
Like commodities in general, metals help investors diversify as their performance bears little resemblance to that of stocks. “We find metals, particularly palladium, platinum, copper, lead, and tin to be of very good use as diversifiers within our portfolio,’’ says Jonathan Citrin of advisory firm Citrin Group in Birmingham, MI, who allocates 17 percent of client portfolios to metals.
But Citrin cautions that investors should understand the benefits and how to access metals before adding them to their portfolio. He uses exchange trade funds, ETFs, and exchange traded notes, ETNs, exclusively because they provide direct exposure and ample liquidity. ETNs are bond-like securities that trade throughout the day and track the performance of a benchmark index.
Precious metals and industrial metals, also known as base metals, can also be tapped through stocks, mutual funds and futures and options contracts.
Futures obligate investors to buy or sell an asset at a negotiated price sometime in the future, which is a way to bet on future price movements. Options, meanwhile, give you the option to buy, or right to sell, an asset at a certain price in the future.
Van Eck’s Foster prefers to access metals through mining stocks like Rio Tinto and BHP Billiton rather than futures. He says that earnings for mining stocks often go up faster than increases in metals prices and the value of a mining company’s mineral reserves are also boosted by higher prices.
Here are ways to invest in each metal:
Don’t let its recent price of $1,780 per ounce fool you — platinum is a key ingredient in making of catalytic convertors for autos as well as electronic components.
You can track the price of platinum through ETFS. Etfs Physical Platinum Shares, is an ETF that holds bars of platinum. The ETF trades daily but maintains wide bid-ask spreads that make it difficult to profit from short-term movements. TheFirstTrust ISE Global Platinum Index Fund tracks platinum through 23 global stocks engaged in mining and production of the precious metal.
Platinum can also be traded through futures and options on the Chicago Mercantile Exchange. Also tracking platinum futures is the iPath Dow Jones-UBS Platinum Subindex ETN.
Palladium is used in many of the same ways as platinum. Investment options include futures as well as Etfs Physical Palladium SharesETF, which like its platinum counterpart sports wide spreads. Investors have poured into these white metal ETFs since the start of 2010 with ETF holdings now representing 30 percent of worldwide palladium supply and 20 percent of platinum supply, according to metals distributor Johnson Matthey.