Last Friday, ETF Securities finally launched the U.S.’ first physically backed platinum and palladium funds, more than eight months after first filing. And what a launch day they had: By the end of the first day of trading, assets in the ETFS Platinum Trust (NYSE Arca: PPLT) and ETFS Palladium Trust (NYSE Arca: PALL) swelled to over $100 million, with over 400,000 shares traded in (PPLT) and 295,000 shares traded in (PALL).
It was a release of “pent-up demand” among U.S. investors, says Graham Tuckwell, founder and chairman of ETF Securities. The Europe-based provider, which specializes in commodity-based exchange-traded products, now has assets under management in excess of $15 billion worldwide.
With more than 20 years’ corporate and investment banking experience, Tuckwell is an expert in the metals markets, and recently served as panelist for the Inside ETFs Conference session on Commodity ETFs. While at the conference, HAI Associate Editor Lara Crigger chatted briefly with Tuckwell about his firm’s new U.S. platinum and palladium funds, including the huge opening day interest, pushback from the automakers and whether he thinks the funds will move their respective markets.
Lara Crigger, associate editor, HardAssetsInvestor.com (Crigger): PALL and PPLT both had an incredible launch day. Obviously you’d hoped for a good opening, but did you foresee investor interest being so high right off the bat?
Graham Tuckwell, chairman, ETF Securities (Tuckwell): I think what we found for a number of our products is that sometimes there is a little pent-up demand. People can read what’s happening and know what funds are coming, so when they do come, sometimes in that first week or so you can see a release of that pent-up demand.
But we’ll see. Obviously we filed for those products because we thought there would be good interest in them. We’ve obviously been delighted with the high trading volumes and number of creations straight out of the gate. So I think it’s one of the most successful launches of the last 12 months, I suspect.
Crigger: Why did it take so long for PALL and PPLT to come to the U.S. market? You filed almost nine months ago.
Tuckwell: It really was a case—and this happened with gold and silver too—that the SEC needed to understand the underlying markets. With gold and silver both, we had to go through a process of explaining the underlying markets to the SEC. And we’ve had to do the same thing again. We had to define them.
Crigger: To that end, the platinum and palladium markets are much smaller than gold, and even silver. Are you running into concerns that your funds might actually move their markets?
Tuckwell: No, not for the sort of amount that we’re anticipating. To move the market, you’d really have to have millions and millions of demand – and a market that hasn’t seen the demand fall off in the underlying metal.
These are the sorts of markets that are smaller, and therefore if that demand gets large enough, it could start to be an issue. But we’ve obviously been in dialogue with the SEC on this issue, just to make sure investors are protected. The last thing we want to see is any short squeezing in the market, because all that can ever lead to is prices temporarily jumping and then coming back, and the fund won’t do well as a result. So we have every interest to make sure that there’s a free market out there, and that it’s a properly priced market, too.
Crigger: The two funds have relatively low caps on the amount of metal they may hold. With such brisk interest, are you concerned about hitting the caps soon?
Tuckwell: We didn’t choose those caps based on the perceived market size; we chose those caps, or the amount of shares in them, because we have to pay registration fees on them. You pay those registration fees whether or not the thing gets approved, so we chose a reasonably small amount to begin with.
If we do get there—and perhaps we’ll get there soon—we will go back to the SEC and ask those limits to be increased.
Crigger: Have you experienced any pushback from the U.S. automakers about these funds?
Tuckwell: No, not at all. We haven’t received a single call, a single email. They’ve been absolutely quiet.
Crigger: Does that surprise you, given how much platinum and palladium is used by automakers? That seems like something they’d be really concerned about.
Tuckwell: Given the fall in demand for new vehicles—despite this initial program [“Cash for Clunkers”] that was obviously a temporary stopgap—I suspect the auto industry has other concerns on its mind.
Crigger: So, generally speaking, why would investors buy metals in ETF form, versus bullion, coins or some other issue?
Tuckwell: It’s a lot more convenient. It’s a lot cheaper, and it’s a lot safer. People who buy gold coins and other things like that, they’re paying enormous premiums for them. They don’t have the liquidity that the exchange-traded products have: You have to go out of your way to sell them, you have to get verification on them, you’ve got to put them in a safe place and not lose them, and so on.
Why would you ever buy physical bullion, when you can buy those products that are backed by physical bullion? They’re almost like a warehouse receipt: Here’s your receipt, and we hold some bullion for you. It’s just an easier way.
Written by Lara Crigger From Hard Assets Investor
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