10-K: Abrdn Precious Metals Basket ETF Trust Reports Slight NAV Decrease in 2023 Amidst Market Volatility

The abrdn Precious Metals Basket ETF Trust experienced a slight decrease in its net asset value during 2023, primarily due to a reduction in outstanding shares and market fluctuations.

Summary

• The abrdn Precious Metals Basket ETF Trust's net asset value decreased from $1,007,501,383 at the end of 2022 to $958,830,648 at the end of 2023, representing a 4.83% decrease.
• Outstanding shares in the trust decreased from 11,350,000 at the end of 2022 to 10,450,000 at the end of 2023.
• The net asset value per share increased by 3.36% from $88.77 to $91.75 during the same period.
• The price per ounce of gold, silver, platinum, and palladium in the proportions held by the Trust rose 3.80% from $95.70 to $99.34.
• The Sponsor's Fee for the year ended December 31, 2023, was $5,919,545, which is 0.60% of the Trust's adjusted net asset value.
• The Trust's net increase in assets from operations for the year was $27,533,575, primarily due to realized gains on bullion transfers and a change in unrealized gains on investment in bullion, offset by the Sponsor's Fee.

Sentiment

Score: 5

Explanation: The document presents a neutral to slightly negative sentiment due to the decrease in NAV, but also highlights the increase in NAV per share. The detailed risk factors and market volatility discussions temper any positive outlook.

Positives

• The net asset value per share increased by 3.36% in 2023.
• The Trust experienced a net increase in assets from operations of $27,533,575 for the year.

Negatives

• The Trust's net asset value decreased by 4.83% in 2023.
• Outstanding shares decreased from 11,350,000 to 10,450,000 during 2023.

Risks

• The price of bullion may be affected by the sale of ETVs tracking the gold, palladium, platinum and silver markets.
• Crises may motivate large-scale sales of gold, palladium, platinum and silver which could decrease the price of Bullion and adversely affect an investment in the Shares.
• Several factors may have the effect of causing a decline in the prices of Bullion and a corresponding decline in the price of Shares.
• A decline in the automobile industry may have the effect of causing a decline in the prices of platinum and palladium and a corresponding decline in the price of Shares.
• The value of the Shares relates directly to the value of the Bullion held by the Trust and fluctuations in the price of gold, silver, platinum or palladium could materially adversely affect an investment in the Shares.
• The sale of the Trust's Bullion to pay expenses not assumed by the Sponsor at a time of low Bullion prices could adversely affect the value of the Shares.
• The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor or the Trustee under the Trust Agreement.
• The Shares may trade at a price which is at, above or below the NAV per Share and any discount or premium in the trading price relative to the NAV per Share may widen as a result of non-concurrent trading hours between the NYSE Arca and London, Zurich and COMEX.
• A possible short squeeze due to a sudden increase in demand of Shares that largely exceeds supply may lead to price volatility in the Shares.
• Purchasing activity in the platinum and palladium markets associated with Basket creations or selling activity following Basket redemptions may affect the prices of platinum and palladium and Share trading prices.
• Since there is no limit on the amount of platinum and palladium that the Trust may acquire, the Trust, as it grows, may have an impact on the supply and demand of platinum and palladium that ultimately may affect the price of the Shares in a manner unrelated to other factors affecting the global markets for platinum and palladium.
• The Shares and their value could decrease if unanticipated operational or trading problems arise.
• Discrepancies, disruptions or unreliability of the LBMA PM Gold Price, the LBMA Silver Price, or the LME PM Fix could impact the value of the Trust's Bullion and the market price of the Shares.
• If the process of creation and redemption of Baskets encounters any unanticipated difficulties, the possibility for arbitrage transactions intended to keep the price of the Shares closely linked to the prices of the underlying Bullion may not exist and, as a result, the price of the Shares may fall.
• The liquidity of the Shares may be affected by the withdrawal from participation of one or more Authorized Participants.
• Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940 or the protections afforded by the Commodity Exchange Act (CEA).
• The Trust may be required to terminate and liquidate at a time that is disadvantageous to Shareholders.
• The lack of an active market for the Shares may limit the ability of Shareholders to sell the Shares.
• Shareholders do not have the rights enjoyed by investors in certain other vehicles.
• An investment in the Shares may be adversely affected by competition from other methods of investing in Bullion.
• The amount of Bullion represented by each Share will decrease over the life of the Trust due to the recurring deliveries of Bullion necessary to pay the Sponsors Fee in-kind and potential sales of Bullion to pay in cash the Trust expenses not assumed by the Sponsor.
• The Trust's Bullion may be subject to loss, damage, theft or restriction on access.
• The Trust's lack of insurance protection and the Shareholders limited rights of legal recourse against the Trust, the Trustee, the Sponsor, the Custodian, the Zurich Sub-Custodian and any other sub-custodian exposes the Trust and its Shareholders to the risk of loss of the Trust's Bullion for which no person is liable.
• The Custodian's limited liability under the Custody Agreements and English law may impair the ability of the Trust to recover losses concerning its Bullion and any recovery may be limited, even in the event of fraud, to the market value of the Bullion at the time the fraud is discovered.
• The obligations of the Custodian, the Zurich Sub-Custodian and any other sub-custodians are governed by English law, which may frustrate the Trust in attempting to seek legal redress against the Custodian, the Zurich Sub-Custodian or any other sub-custodian concerning its Bullion.
• Although the relationship between the Custodian and the Zurich Sub-Custodian concerning the Trust's allocated Bullion is expressly governed by English law, a court hearing any legal dispute concerning their arrangement may disregard that choice of law and apply Swiss law, in which case the ability of the Trust to seek legal redress against the Zurich Sub-Custodian may be frustrated.
• The Trust may not have adequate sources of recovery if its Bullion is lost, damaged, stolen or destroyed.
• Shareholders and Authorized Participants lack the right under the Custody Agreements to assert claims directly against the Custodian, the Zurich Sub-Custodian, and any other sub-custodian.
• The Custodian may be reliant on the Zurich Sub-Custodians for the safekeeping of the Trust's platinum and palladium held in Zurich on an allocated basis. Furthermore, the Custodian has limited obligations to oversee or monitor the Zurich Sub-Custodians. As a result, failure by a Zurich Sub-Custodian to exercise due care in the safekeeping of the Trust's platinum and palladium could result in a loss to the Trust.
• Because the Trustee does not, and the Custodian has limited obligations to, oversee and monitor the activities of sub-custodians who may hold the Trust's Bullion, failure by the sub-custodians to exercise due care in the safekeeping of the Trust's Bullion could result in a loss to the Trust.
• The obligations of any sub-custodian of the Trust's Bullion are not determined by contractual arrangements but by LBMA and LPPM rules and London or Zurich Bullion market customs and practices, which may prevent the Trust's recovery of damages for losses on its Bullion custodied with sub-custodians.
• Physical Bullion allocated to the Trust in connection with the creation of a Basket may not meet the Good Delivery Standards and, if a Basket is issued against such Bullion, the Trust may suffer a loss.
• Bullion held in the Trust's unallocated Bullion account and any Authorized Participants unallocated Bullion account will not be segregated from the Custodian's assets. If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant. In addition, in the event of the Custodian's insolvency, there may be a delay and costs incurred in identifying the gold and silver bars and platinum and palladium plates and ingots held in the Trust's allocated Bullion account.
• In issuing Baskets, the Trustee relies on certain information received from the Custodian which is subject to confirmation after the Trustee has relied on the information. If such information turns out to be incorrect, Baskets may be issued in exchange for an amount of Bullion which is more or less than the amount of Bullion which is required to be deposited with the Trust.
• The Trust relies on the information and technology systems of the Trustee, the Custodian, the Marketing Agent and, to a lesser degree, the Sponsor which could be adversely affected by information systems interruptions, cybersecurity attacks or other disruptions which could have a material adverse effect on the Trust's record keeping and operations.
• 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 (as declared by the World Health Organization), the continuation or expansion of war or other hostilities, or a prolonged government shutdown may cause volatility in the price of Bullion due to the importance of a country or region to the Bullion markets, market access restrictions imposed on some local Bullion producers and refiners, potential impacts to global transportation and shipping and other supply chain disruptions.
• 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.
• A significant resurgence of the COVID-19 pandemic or other future public health emergencies could increase the Trust's costs and affect liquidity in the market for Bullion, as well as the correlation between the price of the Shares and the net asset value of the Trust, any of which could adversely affect the value of your Shares.
• Governmental and quasi-governmental authorities and regulators throughout the world have at times responded to major economic disruptions with a variety of fiscal and monetary policy changes, including, but not limited to, direct capital infusions into companies and other issuers, new monetary tools and lower interest rates. An unexpected or sudden reversal of these policies, or the ineffectiveness of these policies, is likely to increase volatility in the market for Bullion, which could adversely affect the price of the Shares.
• Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust.

Future Outlook

The Trust undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Management Comments

• The Sponsor believes that investors will be able to more effectively implement strategic and tactical asset allocation strategies that use Bullion by using the Shares instead of using the traditional means of purchasing, trading and holding Bullion and for many investors, transaction costs related to the Shares will be lower than those associated with the purchase, storage and insurance of physical Bullion.
• The Sponsor also determined that the LBMA PM Gold Price fairly represents the commercial value of gold bullion held by the Trust and the Benchmark Price (as defined in Trust Agreement) as of any day is the LBMA PM Gold Price for such day.
• The Sponsor also determined that the LBMA Silver Price fairly represents the commercial value of silver bullion held by the Trust and that the Benchmark Price (as defined in the Trust Agreement) as of any day is the LBMA Silver Price for such day.
• The Sponsor also has determined that the LME PM Fix will fairly represent the commercial value of platinum bullion held by the Trust and, the Benchmark Price (as defined in the Trust Agreement) of the Trust's platinum bullion as of any day is the LME PM Fix for such day.
• 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 Trust's palladium bullion as of any day is the LME PM Fix for such day.

Industry Context

The report provides a detailed overview of the global bullion markets, including the participants, supply and demand dynamics, and pricing mechanisms for gold, silver, platinum, and palladium. It also discusses the role of central banks and the impact of geopolitical events on precious metal prices.

Comparison to Industry Standards

• The Trust's structure as a grantor trust is a common approach for precious metals ETFs, aiming for tax transparency.
• The use of LBMA and LME benchmarks for valuation is standard practice in the industry, ensuring consistency and reliability.
• The custody arrangements with JPMorgan Chase Bank and UBS AG are typical for ETFs holding physical bullion, providing secure storage and segregation.
• The expense ratio of 0.60% is within the range of similar precious metals ETFs, although some may offer lower fees.
• The creation and redemption process through Authorized Participants is a standard mechanism for ETFs, ensuring liquidity and efficient market pricing.
• The Trust's performance is directly tied to the price of the underlying precious metals, which is consistent with the objective of similar ETFs.

Management Changes

Corporate Governance

Related Party Transactions

• The Sponsor's Fee is paid by the Trust through in-kind transfers of Bullion to the Sponsor.
• 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, as agent for their customers and for accounts over which they exercise investment discretion.
• The Trustee and the Custodian and their affiliates may from time to time purchase or sell Bullion directly, for their own account, as agent for their customers and for accounts over which they exercise investment discretion.

Stakeholder Impact

• Shareholders are exposed to the risks of price volatility in the precious metals markets.
• Authorized Participants are responsible for the delivery of Bullion to the Trust and the receipt of Bullion from the Trust in connection with the creation and redemption of Baskets.
• 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, including keeping the Trust's operational records.
• The Custodian is responsible for the safekeeping of the Trust's Bullion.

Next Steps

• The Trust will continue to operate as a passive investment vehicle, with the objective of reflecting the performance of the prices of physical gold, silver, platinum and palladium.
• The Trustee will continue to evaluate the Bullion held by the Trust and determine both the ANAV and the NAV of the Trust on each day that the NYSE Arca is open for regular trading.
• The Sponsor will continue to monitor the overall performance of the Trust and liaise with the Trust's legal, accounting and other professional service providers as needed.
• The Sponsor will continue to develop a marketing plan for the Trust on an ongoing basis, prepare marketing materials regarding the Shares, and execute the marketing plan for the Trust.

Key Dates

Keywords

precious metals, gold, silver, platinum, palladium, ETF, exchange traded fund, bullion, investment, NYSE Arca