10-K: abrdn Palladium ETF Trust Authorized Participant Agreement and Annual Report: Key Details

This document outlines the agreement between an authorized participant and the abrdn Palladium ETF Trust, along with the trust's annual performance and operational details.

Summary

• This document includes the Authorized Participant Agreement for the abrdn Palladium ETF Trust, detailing the procedures for purchasing and redeeming shares of the trust.
• It also includes the Trust's annual report for the fiscal year ended December 31, 2023, providing an overview of the palladium market, the Trust's operations, and financial results.
• The Trust's shares decreased in redeemable value from $295,490,794 at the end of 2022 to $219,309,330 at the end of 2023.
• Outstanding shares increased from 1,800,000 at the end of 2022 to 2,100,000 at the end of 2023.
• The Trust's investment objective is to reflect the performance of physical palladium, less expenses.
• The Sponsor's fee is 0.60% of the adjusted net asset value (ANAV) of the Trust, paid monthly in arrears.
• The price of palladium decreased by 36% in 2023, ending the year at $1,136 per ounce.
• The Trust's net asset value per share decreased by 36.39% from $164.16 at the end of 2022 to $104.43 at the end of 2023.
• The Trust's main expense is the Sponsor's fee, which was $1,464,063 for the year ended December 31, 2023.
• The Trust creates and redeems shares only in baskets of 25,000 shares with authorized participants.
• The Trust's palladium is held by JPMorgan Chase Bank N.A. in London and UBS AG in Zurich.
• The Trust does not hold or trade in commodity futures contracts or other instruments regulated by the Commodity Exchange Act.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to the significant decrease in the value of the Trust's assets and the decline in palladium prices. While the operational aspects are well-defined, the financial performance is concerning.

Positives

• The Shares offer an easily accessible and relatively cost-effective way for investors to participate in the palladium market.
• The Shares are exchange-traded and transparent, providing an efficient means to implement various investment strategies.
• The Shares are backed by physical palladium, minimizing credit risk.
• The Trust's holdings are reported daily on its website.

Negatives

• The price of palladium is volatile and fluctuations directly impact the value of the Shares.
• The Shares may trade at a price that is lower or higher than their net asset value.
• The amount of palladium represented by each Share decreases over time due to the Sponsor's fee and other expenses.
• The Trust has no insurance protection for its palladium holdings.
• The Custodian's liability is limited under the Custody Agreements.
• The Trust is not registered as an investment company and does not have the protections afforded by the Investment Company Act of 1940.
• The Trust is not a commodity pool and does not have the protections afforded by the Commodity Exchange Act.

Risks

• The price of palladium may be affected by the sale of ETVs tracking the palladium markets.
• Crises may motivate large-scale sales of palladium, decreasing its price.
• A decline in the automotive industry or a shift to electric vehicles may decrease demand for palladium.
• The Trust's palladium may be subject to loss, damage, theft, or restriction on access.
• The Trust lacks insurance protection for its palladium holdings.
• The Custodian's liability is limited under the Custody Agreements.
• The Trust relies on the information and technology systems of the Trustee, the Custodian, the Marketing Agent and the Sponsor which could be adversely affected by information systems interruptions, cybersecurity attacks or other disruptions.
• War, a major terrorist attack and other geopolitical events, including but not limited to the war between Russia and Ukraine, outbreaks or public health emergencies may cause volatility in the price of Bullion.
• The Trust may be negatively impacted by the effects of the spread of illnesses or other public health emergencies on the global economy and the markets and service providers relevant to the performance of the Trust.
• Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust.

Future Outlook

The document contains forward-looking statements that are subject to uncertainties and risks, and the Trust undertakes no obligation to update these statements.

Management Comments

• The Sponsor believes that investors will be able to more effectively implement strategic and tactical asset allocation strategies that use palladium bullion by using the Shares instead of using the traditional means of purchasing, trading and holding palladium bullion.
• The Sponsor also has determined that the LME PM Fix will fairly represent the commercial value of palladium bullion held by the Trust and, the Benchmark Price (as defined in the Trust Agreement) of the Trusts palladium bullion as of any day is the LME PM Fix for such day.

Industry Context

The document provides an overview of the palladium industry, including supply and demand dynamics, key market participants, and the role of autocatalysts in palladium demand. It also discusses the operation of the palladium bullion market, including the OTC market, the London and Zurich markets, and futures exchanges.

Comparison to Industry Standards

• The Trust's structure as a grantor trust is a common approach for commodity-backed ETFs, aiming for tax transparency.
• The use of the LME PM Fix for valuation is standard practice in the palladium market.
• The custody arrangements with JPMorgan Chase Bank N.A. and UBS AG are typical for precious metals ETFs.
• The Sponsor's fee of 0.60% is within the range of fees charged by similar commodity ETFs.
• The creation and redemption process with authorized participants is a standard mechanism for maintaining liquidity and price efficiency in ETFs.

Management Changes

Corporate Governance

Related Party Transactions

• The Sponsor receives a fee of 0.60% of the adjusted net asset value (ANAV) of the Trust, paid monthly in arrears.
• The Trustee and the Custodian and their affiliates may from time to time act as Authorized Participants and purchase or sell Shares for their own account.

Stakeholder Impact

• Shareholders experienced a significant decrease in the value of their investment due to the decline in palladium prices.
• Authorized Participants are responsible for the creation and redemption of shares and are subject to a transaction fee.
• The Sponsor is responsible for the ongoing management and marketing of the Trust.
• The Trustee is responsible for the day-to-day administration of the Trust.
• The Custodian is responsible for the safekeeping of the Trust's palladium.

Next Steps

• The Trust will continue to operate as a passive investment vehicle, tracking the price of palladium.
• The Trustee will continue to process creation and redemption orders from Authorized Participants.
• The Sponsor will continue to manage the Trust's operations and marketing.
• The Trust will continue to file periodic reports with the SEC.

Key Dates

Keywords

palladium, ETF, authorized participant, bullion, trust, investment, precious metals, custodian, sponsor, redemption, creation, LME PM Fix