United States Commodity Funds announced this week that is is slashing expenses on its United States Copper Index Fund (CPER) from 0.95% annually to 0.65%. The move makes CPER the cheapest of the three commodity ETPs currently available to U.S. investors; both JJC and CUPM charge annual fees of 0.75%. JJC and CUPM are both ETNs offered by iPath, meaning that they are debt instruments whose performance is linked to an index consisting of copper futures contracts. CPER is structured as a commodity pool, meaning that the fund actually holds the futures contracts and does not feature credit risk (VelocityShares also offers a pair of 2x leveraged copper ETNs: SCPR and LCPR).
Under The Hood: CPER
CPER seeks to replicate the SummerHaven Copper Index Total Return, a benchmark that consists of either two or three copper futures contracts selected based on quantitative formulas. Specifically, the contracts held by CPER are determined based on the slope of the futures curve. If markets are backwardated, CPER holds the two contracts with the highest annualized percentage price difference (i.e., the most severe backwardation). When markets are contangoed, CPER will hold three copper futures, including two with the highest annualized percentage price difference [see Five Very Different Copper ETFs].
Currently, the CPER portfolio is split between July 2012 and September 2012 futures contracts.
“With CPER, we tried to design both a useful tool for investing in copper exposure over the long term, as well as a useful tool for trading copper exposure over the shorter term,” said Chief Investment Officer John Hyland. “We think that offering it with lower expenses will help generate economies of scale for both trading and investing.”
CPER has struggled recently, as steep declines in stock markets have put pressure on commodity prices. The fund is down about 3% year-to-date.
Disclosure: No positions at time of writing.