Notes to the Financial Statements (Unaudited)
1. Organization
The Aberdeen Standard Palladium ETF Trust (the “Trust”)
is a common law trust formed on December 30, 2009 (the “Date of Inception”) under New York law pursuant to
a depositary trust agreement (the “Trust Agreement”) executed by Aberdeen Standard Investments ETFs Sponsor LLC (the
“Sponsor”) and The Bank of New York Mellon as Trustee (the “Trustee”). The Trust holds palladium bullion and
issues Aberdeen Standard Physical Palladium Shares ETF (“Shares”) in minimum blocks of 25,000 Shares (also
referred to as “Baskets”) in exchange for deposits of palladium and distributes palladium in connection with
the redemption of Baskets. Shares represent units of fractional undivided beneficial interest in and ownership of the Trust which
are issued by the Trust. The Sponsor is a Delaware limited liability company and a wholly-owned subsidiary of Aberdeen Standard
Investments Inc. (“ASII”). ASII is a wholly-owned indirect subsidiary of Standard Life Aberdeen plc. The Trust is governed
by the Trust Agreement.
The investment objective of the Trust is for the Shares to reflect
the performance of the price of palladium, less the Trust’s expenses and liabilities. The Trust is designed to provide
an individual owner of beneficial interests in the Shares (a “Shareholder”) an opportunity to participate in the palladium
market through an investment in securities. The fiscal year end for the Trust is December 31.
The accompanying financial statements were prepared in accordance
with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial
information and with the instructions for Form 10-Q. In the opinion of the Trust’s management, all adjustments (which consist
of normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the three
months ended March 31, 2021 and for all periods presented have been made.
These financial statements should be read in conjunction with
the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The results of operations for the three
months ended March 31, 2021 are not necessarily indicative of the operating results for the full year.
2. Significant Accounting Policies
The preparation of financial statements in accordance with U.S.
GAAP requires those responsible for preparing financial statements to make estimates and assumptions that affect the reported amounts
and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies
followed by the Trust.
2.1. Basis of Accounting
The Sponsor has determined that the Trust falls within the scope
of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial
Services—Investment Companies, and has concluded that for reporting purposes, the Trust is classified as an Investment
Company. The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register
under such act.
2.2. Valuation of Palladium
The Trust follows the provisions of ASC 820, Fair Value Measurement
(“ASC 820”). ASC 820 provides guidance for determining fair value and requires increased disclosure regarding the
inputs to valuation techniques used to measure fair value. ASC 820 defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
ABERDEEN STANDARD PALLADIUM ETF TRUST
Notes to the Financial Statements (Unaudited)
2.2. Valuation of Palladium
(continued)
Palladium is held by JPMorgan Chase Bank, N.A. (the “Custodian”),
on behalf of the Trust, at its London, England vaulting premises. Palladium may also be held by UBS AG, or any other firm selected
by the Custodian to hold the Trust’s palladium in the Trust’s allocated account in the firm’s vault premises
on a segregated basis and whose appointment has been approved by the Sponsor. At March 31, 2021, approximately 74.80% of the
Trust’s palladium was held by one or more sub-custodians.
Palladium is recorded at fair value. The cost of palladium is
determined according to the average cost method and the fair value is based on the afternoon session of the twice daily fix of
an ounce of palladium administered by the London Metal Exchange (“LME”) (the “LME PM Fix”). Realized
gains and losses on transfers of palladium, or palladium distributed for the redemption of Shares, are calculated on a trade date
basis as the difference between the fair value and average cost of palladium transferred.
The LME is responsible for the administration of the electronic palladium
price fixing system (“LMEbullion”) that replicates electronically the manual London palladium fix processes previously
employed by the London Platinum and Palladium Fixing Company Ltd (“LPPFCL”), as well as providing electronic market
clearing processes for palladium bullion transactions at the fixed prices established by the LME pricing mechanism. LMEbullion,
like the previous London palladium fix processes, establishes and publishes fixed prices for troy ounces of palladium twice each
London trading day during fixing sessions beginning at 9:45 a.m. London time (the” LME AM Fix”) and 2:00 p.m. London
time (the “LME PM Fix”).
Once the value of palladium has been determined, the net
asset value (the “NAV”) is computed by the Trustee by deducting all accrued fees, expenses and other liabilities of
the Trust, including the remuneration due to the Sponsor (the “Sponsor’s Fee”), from the fair value of the palladium
and all other assets held by the Trust.
The Trust recognizes changes in fair value of the investment
in palladium as changes in unrealized gains or losses on investment in palladium through the Statement of Operations.
The per Share amount of palladium exchanged for a purchase
or redemption is calculated daily by the Trustee using the LME PM Fix to calculate the palladium amount in respect of any
liabilities for which covering palladium sales have not yet been made, and represents the per Share amount of palladium
held by the Trust, after giving effect to its liabilities, to cover expenses and liabilities and any losses that may have occurred.
Fair Value Hierarchy
ASC 820 establishes a hierarchy that prioritizes inputs to valuation
techniques used to measure fair value. The three levels of inputs are as follows:
– Level 1. Unadjusted quoted prices
in active markets for identical assets or liabilities that the Trust has the ability to access.
– Level 2. Observable inputs other
than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument
on an inactive market, prices for similar instruments and similar data.
– Level 3. Unobservable inputs for
the asset or liability to the extent that relevant observable inputs are not available, representing the Trust’s own assumptions
about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best
information available.
ABERDEEN STANDARD PALLADIUM ETF TRUST
Notes to the Financial Statements (Unaudited)
2.2. Valuation of Palladium
(continued)
To the extent that valuation is based on models or inputs that
are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree
of judgment exercised in determining fair value is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which
the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair
value measurement in its entirety.
The Trust's investment
in palladium is classified as a level 1 asset, as its value
is calculated using unadjusted quoted prices from primary market sources.
The categorization of the Trust’s assets is as shown below:
|
(Amounts in 000’s of US$)
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
Investment in palladium
|
|
$
|
405,039
|
|
|
$
|
356,424
|
|
There were no transfers between levels during the three months
ended March 31, 2021. The Trust’s palladium was transferred from Level 2 to Level 1 at December 31, 2020.
2.3. Palladium Receivable and Payable
Palladium receivable or payable represents the quantity
of palladium covered by contractually binding orders for the creation or redemption of Shares respectively, where the palladium
has not yet been transferred to or from the Trust’s account. Generally, ownership of palladium is transferred within two
business days of the trade date. At March 31, 2021, the Trust had no palladium receivable or payable for the creation or
redemption of Shares. At December 31, 2020, the Trust had no palladium receivable or payable for the creation or
redemption of Shares.
2.4. Creations and Redemptions
of Shares
The Trust expects to create and redeem Shares from time to time,
but only in one or more Baskets (a Basket equals a block of 25,000 Shares). The Trust issues Shares in Baskets to Authorized
Participants on an ongoing basis. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust.
An Authorized Participant is a person who (1) is a registered broker-dealer or other securities market participant such as a bank
or other financial institution which is not required to register as a broker-dealer to engage in securities transactions; (2) is
a participant in The Depository Trust Company; (3) has entered into an Authorized Participant Agreement with the Trustee and the
Sponsor; and (4) has established an Authorized Participant Unallocated Account with the Trust’s Custodian or other palladium
bullion clearing bank. An Authorized Participant Agreement is an agreement entered into by each Authorized Participant, the Sponsor
and the Trustee which provides the procedures for the creation and redemption of Baskets and for the delivery of the palladium required
for such creations and redemptions. An Authorized Participant Unallocated Account is an unallocated palladium account, either
loco London or loco Zurich, established with the Custodian or a palladium bullion clearing bank by an Authorized Participant.
ABERDEEN STANDARD PALLADIUM ETF TRUST
Notes to the Financial
Statements (Unaudited)
2.4. Creations and Redemptions
of Shares (continued)
The creation and redemption of Baskets is only made in exchange
for the delivery to the Trust or the distribution by the Trust of the amount of palladium represented by the Baskets being
created or redeemed, the amount of which is based on the combined NAV of the number of Shares included in the Baskets being created
or redeemed determined on the day the order to create or redeem Baskets is properly received.
Authorized Participants may, on any business day, place an order
with the Trustee to create or redeem one or more Baskets. The typical settlement period for Shares is two business days. In the
event of a trade date at period end, where a settlement is pending, a respective account receivable and/or payable will be recorded.
When palladium is exchanged in settlement of a redemption, it is considered a sale of palladium for financial statement
purposes.
The amount of palladium represented by the Baskets created
or redeemed can only be settled to the nearest 1/1000th of an ounce. As a result, the value attributed to the creation or redemption
of Shares may differ from the value of palladium to be delivered or distributed by the Trust. In order to ensure that
the correct amount of palladium is available at all times to back the Shares, the Sponsor accepts an adjustment to its management
fees in the event of any shortfall or excess on each transaction. For each transaction, this amount is not more than 1/1000th of
an ounce of palladium.
As the Shares of the Trust are subject to redemption at the
option of Authorized Participants, the Trust has classified the outstanding Shares as Net Assets. Changes in the number of Shares
outstanding are presented in the Statement of Changes in Net Assets.
2.5. Income Taxes
The Trust is classified as a “grantor trust” for
U.S. federal income tax purposes. As a result, the Trust itself will not be subject to U.S. federal income tax. Instead, the Trust’s
income and expenses will “flow through” to the Shareholders, and the Trustee will report the Trust’s proceeds,
income, deductions, gains, and losses to the Internal Revenue Service on that basis.
The Sponsor has evaluated whether or not there are uncertain
tax positions that require financial statement recognition and has determined that no reserves for uncertain tax positions are
required as of March 31, 2021 and December 31, 2020.
2.6. Investment in Palladium
Changes in ounces of palladium and their respective values
for the three months ended March 31, 2021 and 2020 are set out below:
|
|
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Three Months Ended
March 31, 2021
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|
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Three Months Ended
March 31, 2020
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|
|
(Amounts in 000’s of US$, except for ounces data)
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|
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Ounces of palladium
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|
|
|
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Opening balance
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152,187.5
|
|
|
|
157,815.0
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Creations
|
|
|
11,688.4
|
|
|
|
23,524.8
|
|
|
Redemptions
|
|
|
(9,348.2
|
)
|
|
|
(49,385.6
|
)
|
|
Transfers of palladium to pay expenses
|
|
|
(227.4
|
)
|
|
|
(239.7
|
)
|
|
Closing balance
|
|
|
154,300.3
|
|
|
|
131,714.5
|
|
|
|
|
|
|
|
|
|
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|
ABERDEEN STANDARD PALLADIUM ETF TRUST
Notes to the Financial Statements (Unaudited)
|
|
|
Three Months Ended
March 31, 2021
|
|
|
Three Months Ended
March 31, 2020
|
|
|
Investment in palladium
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
356,424
|
|
|
$
|
300,638
|
|
|
Creations
|
|
|
28,524
|
|
|
|
53,808
|
|
|
Redemptions
|
|
|
(23,814
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)
|
|
|
(98,257
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)
|
|
Realized gain on palladium distributed for the redemption of Shares
|
|
|
9,510
|
|
|
|
39,238
|
|
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Transfers of palladium to pay expenses
|
|
|
(537
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)
|
|
|
(531
|
)
|
|
Realized gain on palladium transferred to pay expenses
|
|
|
199
|
|
|
|
258
|
|
|
Change in unrealized gain on investment in palladium
|
|
|
34,733
|
|
|
|
8,711
|
|
|
Closing balance
|
|
$
|
405,039
|
|
|
$
|
303,865
|
|
2.7. Expenses
/ Realized Gains / Losses
The primary expense of the Trust is the Sponsor’s Fee, which is paid by the Trust through in-kind transfers of palladium
to the Sponsor.
The Trust will transfer palladium to the Sponsor to pay
the Sponsor’s Fee that accrues daily at an annualized rate equal to % of the adjusted daily net asset value (“ANAV”)
of the Trust, paid monthly in arrears.
The Sponsor has agreed to assume administrative and marketing
expenses incurred by the Trust, including the Trustee’s monthly fee and out of pocket expenses, the Custodian’s fee
and the reimbursement of the Custodian’s expenses, exchange listing fees, United States Securities and Exchange Commission
(the “SEC”) registration fees, printing and mailing costs, audit fees and up to $ per annum in legal expenses.
For the three months ended March 31, 2021 and
2020, the Sponsor’s Fee was $ and $, respectively.
At March 31, 2021 and at December 31, 2020, the fees payable
to the Sponsor were $212,429 and $185,515, respectively.
With respect to expenses not otherwise assumed by the Sponsor,
the Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust’s palladium as necessary
to pay these expenses. When selling palladium to pay expenses, the Trustee will endeavor to sell the smallest amounts of palladium
needed to pay these expenses in order to minimize the Trust’s holdings of assets other than palladium. Other than the
Sponsor’s Fee, the Trust had no expenses during the three months ended March 31, 2021 and 2020.
Unless otherwise directed by the Sponsor, when selling palladium
the Trustee will endeavor to sell at the price established by the LME PM Fix. The Trustee will place orders with dealers (which
may include the Custodian) through which the Trustee expects to receive the most favorable price and execution of orders. The Custodian
may be the purchaser of such palladium only if the sale transaction is made at the next LME PM Fix or such other publicly
available price that the Sponsor deems fair, in each case as set following the sale order. A gain or loss is recognized based on
the difference between the selling price and the average cost of the palladium sold. Neither the Trustee nor the Sponsor
is liable for depreciation or loss incurred by reason of any sale.
Realized gains and losses result from the transfer of palladium
for Share redemptions and / or to pay expenses and are recognized on a trade date basis as the difference between the fair value
and average cost of palladium transferred.
ABERDEEN STANDARD PALLADIUM ETF TRUST
Notes to the Financial
Statements (Unaudited)
2.8. Subsequent Events
In accordance with the provisions set forth in FASB ASC 855-10,
Subsequent Events, the Trust’s management has evaluated the possibility of subsequent events impacting the Trust’s
financial statements through the filing date. During this period, no material subsequent events requiring adjustment to or disclosure
in the financial statements were identified.
3. Related Parties
The Sponsor and the Trustee are considered to be related parties
to the Trust. 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.
In addition, the Trustee and the Custodian and their affiliates may from time to time purchase or sell palladium directly,
for their own account, as agent for their customers and for accounts over which they exercise investment discretion. The Trustee’s
and Custodian’s fees are paid by the Sponsor and are not separate expenses of the Trust.
4. Concentration of Risk
The Trust’s sole business activity is the investment in palladium,
and substantially all the Trust’s assets are holdings of palladium, which creates a concentration of risk associated
with fluctuations in the price of palladium. Several factors could affect the price of palladium, including: (i) global palladium
supply and demand, which is influenced by factors such as production and cost levels in major palladium-producing countries, recycling,
autocatalyst demand, industrial demand, jewelry demand, investment demand, and sales of existing stockpiles of palladium, which
have been a key source of supply and are likely to be exhausted soon, placing a higher burden on new mine supply; (ii) investors’
expectations with respect to the rate of inflation; (iii) currency exchange rates; (iv) interest rates; (v) investment and trading
activities of hedge funds and commodity funds; and (vi) global or regional political, economic or financial events and situations.
In addition, there is no assurance that palladium will maintain its long-term value in terms of purchasing power in the future.
In the event that the price of palladium declines, the Sponsor expects the value of an investment in the Shares to decline
proportionately. Each of these events could have a material effect on the Trust’s financial position and results of operations.
5. Indemnification
Under the Trust’s organizational documents, the Trustee
(and its directors, employees and agents) and the Sponsor (and its members, managers, directors, officers, employees and affiliates)
are indemnified by the Trust against any liability, cost or expense it incurs without gross negligence, bad faith, willful misconduct
or willful malfeasance on its part and without reckless disregard on its part of its obligations and duties under the Trust’s
organizational documents. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred.
ABERDEEN
STANDARD PALLADIUM ETF TRUST