It’s no secret that precious metals prices have been under extreme pressure in 2014. Gold, which hit a high of more than $1,800 an ounce this summer, has plummeted to less than $1,180 this week. Silver has fared even worse over the past couple of years, losing 47% of its value since early 2013.
But don’t give the precious metals sector up for dead just yet — the right precious metals exchange traded funds (ETFs) could be deliver big over the longer term.
ETFs are a good way to gain exposure to the precious metals sector without betting the farm on a single mining stock or buying physical bullion or coins. Because ETFs trade over a major exchange like stocks, ETFs offer more trading flexibility than mutual funds — expenses also tend to be lower than those of actively traded mutual funds.
Here are three precious metals ETFs to buy for the rebound — one growth-focused, one for value and one for diversification:
Precious Metals ETF for Growth: ETFS Physical Palladium Shares (PALL)
Click to Enlarge Total Assets: $416 million
YTD Performance: 13%
If you’re looking for a precious metals ETF that actually is experiencing growth now, ETFS Physical Palladium Shares (PALL) is a good choice.
Although gold and silver lost much of their glitter in 2014, the same cannot be said for palladium, the close cousin to platinum. Palladium is not just a pretty white metal; it is used extensively in automotive and jewelry manufacturing. China is one of the strongest markets.
As is the case with gold, silver and platinum, investors can buy actual palladium bars and coins. But for most investors, physical palladium is a hassle because it requires a high initial investment and storing, securing and insuring bullion or coins can be expensive.
PALL gives palladium investors another option — the ETF holdings are exclusively in physical palladium bullion — and like all ETFs, it trades via a major exchange, delivering greater liquidity and transparency. The expense ratio is .6%, which means $60 in expenses for every $10,000 invested.
Prices are likely to continue to rise in 2015, driven by conflict in two of the top palladium-producing countries: Russia and South Africa.
Precious Metals ETF for Value: Global X Silver Miners ETF (SIL)
Click to Enlarge Total Assets: $179 million
YTD Performance: -19.3%
One of the first things you notice about Global X Silver Miners ETF (SIL), which is focused on silver mining stocks rather than the physical metal, is that the ETF is trading down nearly 20% for the year.
But that’s not necessarily heinous news for investors. Downward pressure on precious metal prices and mining stocks in the short term have actually made these investments comparatively cheap now — and worth consideration by value-focused investors.
Another reason to look to silver: Industrial demand for the white metal is expected to grow more than 25% over the next three to four years. Those are big reasons why SIL is well-positioned to grow in 2015 as silver prices rise and silver miners’ fortunes improve.
However, investors should note that the SIL ETF is fairly top-heavy. Just two industry leaders — Silver Wheaton Corp. (USA) (SLW) and Mexican mining company Industrias Penoles (IPOAF) — account for more than 26% of SIL’s 23 holdings.
All that glitters is not gold, and silver has long been viewed as a lower-cost alternative to gold when hedging against market volatility and political chaos.
Precious Metals ETF for Diversification: ETFS Precious Metals Baskets Trust (GLTR)
Click to Enlarge Total Assets: $231 million
YTD Performance: -7.2%
Despite the seemingly endless debate over the value of precious metals, diversification is a good reason every investor should consider gaining exposure. ETFS Precious Metals Baskets Trust (GLTR) is an interesting choice because it is a physical precious metals basket that includes gold, silver, platinum and palladium.
Currently, the ETF is heavily weighted toward gold, which comprises about 56% of its holdings; silver makes up another 28%, while platinum and palladium account for around 7.5% each. That gives investors exposure across the precious metals spectrum.
Price volatility is a given with precious metals, but diversification is never a bad idea. Precious metals can be a good hedge against geopolitical risk, unexpected inflation and potential volatility in the dollar — all factors that could restore the glitter of precious metals in 2015.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned investments.