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This ETF's Already Up Almost 30% in 2020

By Dan Caplinger - Jan 23, 2020 at 9:18AM

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Could it rise even higher?

The stock market was kind to investors in 2019, with the Dow Jones Industrials rising 22% and the broader-based S&P 500 coming in with a 29% rise even before adding in dividends. You won't see those kinds of returns every year, and 2019 was among the best performances for major market benchmarks in the past 20 years.

When you consider how rare a feat it is for the market to rise almost 30% in a single year, it's all the more notable when an investment manages to achieve the same result in just three weeks. Yet that's what one ETF has already managed to do, and the interesting thing is that this fund has produced these amazing returns without using leverage or any other return-boosting gimmicks. Below, we'll name this ETF and look at whether it can continue its strong run.

Mylar balloons spelling out 2020.

Image source: Getty Images.

The other precious metal

As the stock market has risen over the past decade, some investors have looked to other types of investments in order to diversify their portfolios. Historically, gold and silver were popular choices among investors looking for greater diversification, because precious metals didn't rise and fall in lockstep with the stock market. In particular, during times of geopolitical turmoil, many market participants turned to gold as a safe-haven investment.

Beyond gold and silver, though, there are other precious metals that get somewhat less attention. Platinum and palladium are part of a larger group referred to as platinum-group metals, because the two white metals share similar chemical characteristics along with four other related elements. In particular, both platinum and palladium are key components of pollution-control devices, with platinum currently featured prominently in devices used in diesel vehicles, while palladium has more of a presence in gasoline-powered cars and trucks.

Why palladium is soaring

It's because of its industrial use that palladium has seen its price rise so much recently. The auto industry worldwide has been relatively strong, and key emerging markets like China have imposed greater pollution-control restrictions on new vehicles. That's boosted the demand for palladium. However, supplies of the white metal have always been far smaller than those of gold, silver, or even platinum.

Those conditions set the stage for a big rise in palladium prices, which have jumped from around $1,900 per ounce in late December to as high as $2,573 per ounce in the past week. Yet many investors haven't been comfortable with the idea of investing directly in palladium, as it would require either buying physical palladium bars or coins or starting to trade futures contracts on commodity exchanges.

The ETF tied to palladium prices

The universe of exchange-traded funds has grown dramatically over the years to meet the need for specialized investment like this, and so it's no surprise that there's a palladium ETF. Aberdeen Standard Physical Palladium (PALL 1.83%) was designed with the sole purpose of holding palladium bullion, allowing investors to buy ETF shares that correspond to a certain amount of the metal.

Currently, each share of the palladium ETF corresponds to 0.094136 ounces of palladium, and so the value of the shares rises and falls with palladium's value on commodities exchanges. With almost $400 million in assets under management, many investors have taken advantage of the ETF to ride palladium's price higher.

Will the palladium ETF keep going up?

Commodities markets can be volatile, and speculation about how high palladium could go has been rampant. Trading volume has risen dramatically as more people start to watch the palladium market.

From a fundamental standpoint, though, tight supplies and high demand for palladium aren't likely to change in the near future. It'll take time for palladium miners to try to boost production, and even their best efforts won't have an immediate or even short-term impact. One thing is sure, though: palladium and the palladium ETF are likely to remain in the spotlight throughout much of 2020.

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Aberdeen Standard Palladium ETF Trust - Aberdeen Standard Physical Palladium Shares ETF Stock Quote
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