IPLT – VelocityShares 2x Inverse Platinum ETN Review
Tracks the platinum price by buying futures contracts
Leveraged 2x inverse
Management fee (expense ratio): 1.35%
IPLT is an ETN (exchange-traded note), which means that it behaves like an ETF, but is technically a debt note and not a fund.
This platinum ETF is inversely leveraged by a factor of 2, meaning that the fluctuations are twice the magnitude and opposite of the index it tracks (S&P GSCI Platinum Index ER).
A chart for IPLT since its inception in 2011.
IPLT is not backed by physical platinum, but tracks a platinum price index by being exposed to platinum futures and is intended to reflect the returns that are potentially available through an inverted, leveraged investment in the futures contracts on platinum. While that process shouldn't require much active management, the expense ratio of 1.35% appears high. This is the only leveraged short platinum ETF/ETN currently available.
PTM was launched in October of 2011, and is issued by VelocityShares. It tracks the S&P GSCI Platinum Index ER.
IPLT is designed for those who wish to short platinum. There are no tracking errors with ETNs, as opposed to ETFs, which can sometimes stray a little from the index or commodity price. This security is intended for sophisticated investors.
While ETFs have tracking risk, ETNs like IPLT have credit risk. There is a possibility, although unlikely, that the issuer bank (Credit Suisse in the case of IPLT) may go bankrupt and take some of the value of the ETN with it. This credit risk should be balanced against the tracking risk of ETFs, which means that the valuation of the ETF may be slightly different than the underlying index. The credit risk of ETNs is no different from the credit risk that is associated with most other investment products and derivatives.
Depending on local tax legislation, an ETN may be more tax efficient than an ETF.
Liquidity of IPLT is low, with daily volume around 2,000.
The security can be traded throughout the day like a stock.
The lack of diversification that is a part of any single commodity-tracking ETF or ETN means that concentration risk is 100% for IPLT. In other words, the investor should be willing to lose 100% of his investment.
It is in the nature of selling short, especially with leverage, that any losses can quickly reach high levels. This platinum ETF should only be bought by sophisticated investors.
Platinum-ETF.net comment: This platinum ETF is leveraged 2x and inverse. It increases in value if the platinum index (the S&P GSCI Platinum Index ER) decreases, and the magnitude is double. It tracks the index by being involved in the market of platinum futures. For the layman investor, this process is considerably more difficult to comprehend than a physically backed ETF. The credit risk associated with this structure (ETN) can be an issue for very conservative investors. The expense ratio of 1.35% appears relatively high, but this is a unique platinum ETF in that it is the only 2x leveraged inverse platinum ETF currently available. The double leverage doubles the potential profit from a decrease in the platinum price, and the risk is correspondingly high. The low liquidity may be a drawback for some investors. US investors may enjoy tax advantages from an ETN relative to an ETF.
IPLT is traded on NYSE Arca in the US.
Platinum-ETF.net grade: B-
