GLTR: Four Precious Metals In One ETF

The abrdn Physical Precious Metals Basket Shares ETF offers direct, transparent exposure to gold, silver, platinum, and palladium, with the strongest weight towards the first metal (57%).GLTR is structured as a grantor trust, best suited for Roth IRAs, and does not distribute income; returns are driven solely by price appreciation of the metals held.Despite covering different commodities, the annualized volatility of this product is concerning, tax treatment is less favorable than standard ETFs, and expense fees are met by monthly sales of physical metals.GLTR's low correlation with equities and twice-yearly independent inspections make it a diversifying, transparent option for precious metal allocation.DBP, which also covers a narrower pool of precious metals, is discussed and contrasted against GLTR.The abrdn Physical Precious Metals Basket Shares ETF (GLTR), which began trading on October 21, 2010, is backed by the investment management group Aberdeen Group PLC. GLTR, which has amassed total assets under management of $3.35B, is priced at $245 and can be accessed at an expense ratio of 0.6%. GLTR does not pay any dividends to its holders.GLTR’s remit is to serve as a convenient one-stop shop for those who want to bet on the price movements of four precious metals in physical form- gold, silver, platinum, and palladium—without worrying about the hassles of owning those metals. GLTR, which is set up as a grantor trust, isn’t an equally weighted portfolio but rather holds different proportions of these physical metals (it is over-indexed to physical gold, which alone accounts for 57% of the portfolio) that are parked in vaults based in London.GLTRUnlike most ETFs that track a specific index or resort to active management strategies, GLTR’s purpose is just to own these physical metals and issue shares against its holdings.In order to enable GLTR’s smooth functioning, we have quite a few different players that carry out important roles:As noted earlier, even though GLTR covers four different precious metals, there’s no doubt that it tilts very heavily towards gold (57%), and this may not always be favorable. Unlike Silver and the other industrial precious metals that are also extensively used in industrial applications and in a pro-growth environment, gold is seen as an unproductive asset that also fails to attract meaningful positive interest when the economic cycle turns for the good.Prima facie, investors may be tempted to believe that since GLTR isn’t a single-commodity ETF and rather focuses on four commodities, the added diversification could bring down the risk profile of this product. The reality, though, is quite different, as GLTR’s annualized volatility profile of 35.24%, which is more than double that of your standard ETF, suggests that this is a product that is prone to seeing wild swings over an annual time frame. This facet makes it a risky proposition for investors with conservative risk appetites.Seeking AlphaGiven the mammoth quantities of physical metal that GLTR owns, one would think that steps would be taken to insure some part of the portfolio against potential theft, loss, or damages, but that isn’t the case here.The difference between GLTR’s bid and ask (in percentage terms it works out to 0.22%) suggests that investors run the risk of facing slippages (getting in and out of a position at prices that are different from budgeted prices).Since GLTR’s structure is that of a grantor trust, it is seen as a pass-through entity, by which all tax consequences are passed on to the holders of GLTR shares. Precious metals held by grantor trusts are also classified as collectibles, making a holding period beyond one year come under a superior collectibles tax rate of 28% if you hold this in a taxable brokerage account. This is a lot more than the standard 15-20% LTCG (long-term capital gains) taxes that standard ETF structures face.Investors should also consider that since GLTR’s metal holdings don’t produce any cash flow (unlike stocks, which typically generate dividends, or bonds, which generate income), it can only meet its management fees and expense ratio by selling a portion of its holdings every month. Thus, over time, investors of GLTR will see their share of holdings in these metals dip. Also, this monthly sale of metals results in capital gains/losses (which investors don’t get the benefit of) for which investors receive no associated tax breaks.A typical proponent of GLTR is a precious metal investor who appreciates the strong safe haven qualities that gold brings, particularly during periods of strife and high inflation (and thus wants to be over indexed to this metal), but also recognizes that when the economic cycle turns, and when global industrial conditions pick up, the other components of this portfolio could pick up the baton (silver is pursued by a range of industries for its high conductive quotient, while palladium and platinum are primarily pursued by the auto industry for their role in emission control).GLTR would also serve as a useful diversifying tool for those who own equity-heavy portfolios, as it shares a limited correlation with the latter; for instance, over the last decade, GLTR’s correlation with the US equity bellwether has only been around 0.16x, suggesting a very weak linear relationship between these two pockets.GLTRInvestors who pursue GLTR are also those who typically aren’t bothered by the income facet of an ETF (something which is very common with ETFs), as its returns are just a function of the price appreciation of the physical holdings, rather than any distributions made.Given the tax inefficiencies of the structure of this product (discussed in the risk section), we also feel that GLTR would be best suited for those with Roth IRAs [Individual Retirement Accounts].Those who dislike opaque structures, and rather those who prefer transparency of their holdings on a daily basis, will also appreciate GLTR, as the bar list of this portfolio is updated and made available every day. Also consider that these holdings don’t just lie in the dark forever, with inspections conducted twice a year to verify their quality.Investors who want an ETF that covers the same precious metals (gold, silver, platinum, and palladium) as GLTR, in physical form, will struggle to find a US-listed alternative. Rather, we feel the closest alternative one could find is the Invesco DB Precious Metals ETF (DBP), although it is not as popular as our product in focus (GLTR’s AUM and daily dollar volumes are 10 and 17x more than DBP) and also has a pricier expense ratio (a 15 bps differential). Both these products typically encounter wide spreads of over 0.2%, although DBP’s is worse by 7 bps.Now, while DBP’s nomenclature suggests that this product also offers coverage to precious metals, there are quite a few differences to note.For starters, unlike GLTR, which actually owns and holds quantities of the various precious metals in physical form, DBP does not and is rather a proxy on the futures contracts of certain precious metalsSecondly, while GLTR covers not just the mainstream precious metals of gold and silver but also the industrial precious metal cohort of platinum and palladium, DBP only dabbles with futures contracts of gold and silver and shuns the latter two entirely.Then we also noted how GLTR does not make any distributions to its holders; DBP differs and makes annual distributions that amount to over 2%, as, besides the futures contracts, it also garners some interest income by holding certain money market instruments and treasury bills.Seeking Alpha, ETF prospectuses, ETF.comGLTR offers convenient and transparent access to those who want to own four precious metals without having to worry about the real-world hassles of owning and maintaining those metals. This gold-heavy portfolio, which is structured as a grantor trust, is best suited for those who have Roth IRAs and don’t have any desire to garner regular income from their stake in GLTR.This article answers these three main questions about GLTR:Editor's note: This article is intended to provide a general overview of the ETF for educational purposes only and, unlike other articles on Seeking Alpha, does not offer an investment opinion about the ETF.This article was written byAnalyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.