Some well-known exchange traded funds have been ensnared in the controversy surrounding Volkswagen AG VLKAY, for the better and the worse.
The iShares MSCI Germany ETF EWG and the First Trust NASDAQ Global Auto Index Fund CARZ are among the notable ETFs that have been plagued by the precipitous drop in Volkswagen's American depositary receipts (ADRs). And as has been duly noted, no ETF has benefited from Volkswagen's woes in similar fashion to the ETFS Physical Palladium Shares PALL.
Volkswagen's woes have been a boon for PALL for a simple reason: Diesel automobiles require platinum for the production of catalytic converters, and it is diesel that has gotten Volkswagen in trouble. Palladium is used in the production of catalytic converters for gasoline-powered automobiles, so traders have bet what is bad for Volkswagen is good for palladium demand, powering PALL to a one-month gain of more than 19 percent.
Related Link: Can Volkswagen Weather The Diesel Storm?
An overlooked ETF that has been caught up in the Volkswagen imbroglio is $5.46 million First Trust ISE Global Platinum Index Fund PLTM. With a name like that, it is easy to understand why the First Trust ISE Global Platinum Index Fund has tumbled 10.1 percent over the past month. After all, platinum is the metal used in the production of catalytic converters for diesel automobiles.
However, PLTM jumped 3.5 percent last week perhaps because market participants took a closer look at the ETF. PLTM does not just hold platinum. The ETF holds shares of companies engaged in the mining and production of platinum group metals (PGMs), an important point because PGMs include platinum as well as palladium, osmium, iridium, ruthenium and rhodium.
Before rushing to commit capital to PLTM, investors and traders should be aware of something interesting surrounding the ETF. Home to 18 stocks, PLTM celebrated its fifth anniversary in March, but as was noted earlier, the ETF has just over $5 million in assets under management. In theory, an ETF of that age and size would be vulnerable to closure.
However, First Trust is not throwing in the towel on PLTM. Rather, the Illinois-based ETF issuer has proposed re-configuring PLTM as an agriculture equities fund.
Last week, First Trust issued a statement saying it will reconvene a meeting on October 12 that could ultimately decide PLTM's future.
“On June 18, 2015, FTA announced that it would seek shareholder approval for changes to the Fund’s investment objective. Subject to shareholder approval, the Fund’s new investment objective will be to seek investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Indxx Global Agriculture Index (the “Agriculture Index”). The Agriculture Index is developed, maintained and sponsored by Indxx, LLC,” according to the statement.
Essentially, the point of the October 12 meeting is to give PLTM shareholders that have not voted on the ETF's conversion to an agriculture fund more time to vote. In other words, PLTM could soon cease to exist as investors currently know it.
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