Alloycation: Why a Palladium ETF Could Be a Good Recession Investment

Alloycation: Why a Palladium ETF Could Be a Good Recession Investment

Steering your portfolio during a recession shouldn't stop you from putting the pedal to the metal.

Alloycation: Why a Palladium ETF Could Be a Good Recession Investment
Guy Ovadia

ByGuy Ovadia

Updated Aug 3, 2022

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Stock Trading

Stock Trading

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Balanced Investing

Global Markets

Global Markets

Precious metals are quintessential inflation hedge commodities. The stable prices of gold and platinum make them safer investments than other commodities and also better stores of value than stocks during a recession. For instance, the easiest way to improve the stability of your portfolio with a gold investment is to buy a gold commodity ETF.

Palladium can be a risky investment, so if you're looking for broader exposure to the precious metals market then consider buying shares in a diversified metals commodity ETFs

Both gold and platinum are extremely scarce, but platinum is superior for industrial uses which make its price relatively more volatile. Similarly, the precious metal palladium is mostly used for industrial purposes—catalysis, printing, soldering, etc.—and a creeping supply shortage has caused the palladium bullion market price to surge.

What is a Palladium ETF?

A palladium ETF is a fund that holds palladium as its underlying asset. Palladium is a rare precious metal that has recently surpassed gold in price, making it one of the most expensive commodities. The problem with palladium is that, just like gold and silver, storing precious metals in significant quantities lowers your net asset value, plus it's harder to sell. 

A palladium ETF solves that by allowing you to invest without dealing with the underlying commodity. Having greater liquidity than palladium futures and eliminating the hassle of dealing with physical palladium is what makes a palladium ETF investment so much more convenient. However, you'll want to pay attention to the expense ratio of commodity ETFs you invest in since high fees can be a downside.

Best palladium ETF

The best way to invest in palladium is by buying Aberdeen physical palladium shares (PALL). The Abrdn palladium ETF trust saw a return this year after there was speculation that a possible shortage in the world's palladium supply would inflate prices for the precious metal. While this didn't pan out, a sensitive supply chain plus its importance in manufacturing makes the market price of palladium volatile.

Russia is the top producer of palladium, so the country's war against Ukraine added uncertainty to an already volatile market. This caused palladium prices to go up and, consequently, the price of PALL shares and other palladium funds. But, PALL outperformed the S&P 500 by 86% over the past five years and, with an expense ratio of 0.6%, is probably the most cost-effective way to invest in the palladium market over the long term. 

Precious metal ETFs

Another way to invest in palladium is through a precious metals fund, which is slightly different than a palladium ETF. Precious metal funds are usually publicly traded investment companies with several metals as their underlying assets. The investment company acts as an asset manager who dictates which assets the fund is exposed to and how capital is allocated.

The Sprott physical platinum and palladium trust (SPPP) is the closest example of a diversified precious metal ETF. Buying shares of SPPP is like investing in physical palladium and platinum at the same time because the fund holds both as underlying assets.

The physical platinum and palladium fund moved this year and has a 1.07% expense ratio, which makes its fees more expensive than PALL physical palladium ETF.

ETF

Palladium allocation

Market price

Net asset value

Expense Ratio

PALL

100%

193.42*

0.60%

SPPP

62%

14.63*

0.95%

GLTR

12%

83.69*

0.60%

*Data collected on 7/29/2022

Palladium can be a risky investment, so if you're looking for broader exposure to the precious metals market then consider buying shares in diversified metals commodity ETFs like Aberdeen standard physical precious metals basket shares (GLTR). This ETF has a 0.6% expense ratio and holds physical palladium, platinum, silver, and gold as its underlying assets—GLTR has exposure to all the best investment metals. These kinds of commodity ETFs make it easy to instantly add a diverse set of precious metals to your portfolio.

Where to buy palladium ETFs

Most online stock trading platforms allow you to buy a palladium ETF as well as a variety of other ETFs and stocks. A great place to get started is Robinhood. Robinhood is an app for trading stocks, options, and crypto.

robinhood
Robinhood

4.3

Stocks

If you're just starting to invest or find other platforms too complicated, then Robinhood is a great simple way to grow your portfolio. Sign up and get a free stock, on the house.

Slow and steady.

Slow and steady.

Do you invest one asset at a time?

Palladium Futures

There is one more way to invest in palladium if you have a high tolerance for risk. It's not a palladium ETF or diversified mutual funds, but rather palladium futures contracts. Futures contracts are like betting on the future price of a commodity, so you can buy palladium futures to make money from the price going up.

You can also short palladium futures to make money from the price going down, but losing money with futures contracts is just as easy as profiting. Futures markets can be risky, the palladium market even more so than other precious metals, so understanding commodities futures and having a solid futures trading strategy is crucial for smart investing.

If you think you're ready to be a futures trader, then your first contract is just clicks away on one of the best futures trading platforms. If one platform will satisfy all your commodity trading needs, it's TradeStation. 

tradestation
TradeStation

Stocks

TradeStation lets you buy and sell almost every asset.  Everything from crypto to stocks, options, and futures contracts, TradeStation can be your go-to platform. Their charts and analysis tools will certainly help you become a big-brain trader.

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