The key thing about the new Exchange Trade Commodities products (ETCs) launched today by Global Palladium Fund is that they are actually supported by physical metal that’s housed in a warehouse in Rotterdam.
This type of ETC is fairly common in the precious metals space, although it’s by no means necessarily the norm, but to date no physically-backed ETC for copper or nickel has existed anywhere in the world.
From today though, investors will be able to buy the Global Palladium Fund’s new products on the London Stock Exchange and on the Borsa Italiana.
The advantage of buying a physically-backed ETC is that investors know that the ETC price is actually benchmarked against a real physical asset rather than devised by complicated financial modelling. ETCs that are not backed by physical assets can be more risky in the event of a significant liquidity event – after all, if you’re buying a product that tracks the copper or nickel price but doesn’t actually have any relationship to physical copper or nickel, then there’s no guarantee that when you want to cash in there’ll be any money to pay out. If the ETC has to go into the market physically to buy the asset it’s supposed to be tracking, what if there isn’t any available, or the price is already moving in a different direction?
All those doubts are dispelled by ETCs which are backed by physical metal, and this is why products like this are particularly popular with gold investors who don’t want to own actual bars, but want the next best thing. The ETCs use Blockchain technology to provide investors with enhanced transparency and security by recording bar information into distributed ledger technology.
There is some cost, of course. The new copper and nickel ETCs have annual total expense ratios of 0.85% and 0.75% respectively.
But given the significant size of the price moves that we’ve seen in commodity markets in recent months, investors are likely to be willing to shoulder such charges.
The listings follow the launch of GPF’s physically-backed, low-cost gold, silver, platinum and palladium ETCs earlier this year.