PowerShares DB Precious Metals Fund
This ETF seeks to replicate an index comprised of futures contracts on gold and silver, with a heavy tilt towards the yellow metal (gold has a base weight of 80% in the underlying index). The use of futures contracts means that DBP won't necessarily correspond perfectly to the changes in the spot prices of these precious metals; the slope of the futures market and the interest earned on any uninvested cash will also contribute to bottom line returns [also see The Definitive Guide to Silver ETF Investing].
The index to which DBP is linked utilizes a proprietary "Optimum Yield" methodology that is designed to minimize the negative impact of rolling exposure in a contangoed market and maximize any positive effect in a backwardated market.
ETFS Physical Precious Metal Basket Shares
This ETF is unique in several ways. First, GLTR includes platinum and palladium in addition to gold and silver, making it more diverse than any of the other options for achieving multi-metal precious metals exposure. Second, GLTR is physically-backed, meaning that the underlying assets are bullion stored in secure vaults. That feature eliminates any nuances related to the use of futures contracts, and means that GLTR will move in unison with changes in the spot price of the underlying metals.
Each share represents ownership of about 0.03 ounces of gold, 1.1 ounces of silver, 0.004 ounces of platinum, and 0.006 ounces of palladium. That means that exposure is tilted towards gold and silver, with the lesser known precious metals combining to account for about 12% of the exposure (gold accounts for just under half, with silver making up about 40% of the portfolio). The relative value of each component will obviously shift with market prices for each, a phenomenon that may be worth keeping an eye on for those concerned about bubbles in metals markets [also see ETFS Debuts Physically-Backed White Metal ETF].
iPath Dow Jones UBS Precious Metals ETN
This product is unique from those profiled above for multiple reasons. Similar to DBP, this product is also linked to an index comprised of gold and silver futures contracts. But JJP is heavier on silver (which accounts for about 27% of the underlying portfolio) and is also structured as an exchange-traded note (ETN). As such, JJP is a senior, unsubordinated, unsecured debt security that is linked to the performance of an index; that means that investors in this product are exposed to the credit risk of the issuing institution (Barclays) but will avoid potential tracking error that some ETFs may experience as a result of the roll process [see more on JJP's Fact Sheet].
iPath Pure Beta Precious Metals ETF (BLNG)
The cleverly-named BLNG is also an exchange-traded note, and is similar in many ways to JJP. BLNG's underlying index has a weight closer to 80% in gold, and this ETN is part of the recently-launched suite of "Pure Beta" ETNs from iPath. That means that the index to which this product is linked won't roll its holdings on predetermined dates, instead basing roll decisions on observable price signals. The Pure Beta methodology is designed to mitigate the impact of contango and backwardation on bottom-line returns. If that goal is accomplished and interest income generated on uninvested cash is substantial enough, BLNG could maintain an attractive risk/return profile (of course, mitigating the impact of contango in a futures-based product is easier said than done). [See more about the "pure beta" ETNs here]
Disclosure: No positions at time of writing.
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