ETFs For Rising Copper Prices

by on March 23, 2012 | ETFs Mentioned:

With equity markets on a winning streak, many investors have brushed aside the commodity asset class as it has lagged behind in the new year. Nonetheless, this corner of the market remains abundant with opportunities and the potential to deliver impressive gains for those with a keen eye and a stomach for risk. Industrial metals, and copper in particular, have attracted interest lately as global economic growth expectations have begun to improve thanks to encouraging developments in the U.S. coupled with evaporating uncertainties in Europe [see also 12 High-Yielding Commodities For 2012].

Copper prices have faced headwinds lately as concerns of slowing growth in China have spooked many investors into jumping ship from the industrial metals altogether. While China is the biggest producer and consumer of copper, some experts feel that these growth concerns may be a bit overblown. The shiny metal is one of the most versatile commodities across developed and emerging markets alike  thanks to its widespread uses in manufacturing, electronics, and construction [see 13 Ways To Invest In Copper].

Copper ETFs In Focus

In a recent MoneyMorning.com article, author Michael Adams outlined his bullish outlook on copper prices along with three viable securities that could offer investors a way to tap into rising prices. The author cites that mining companies will need to ramp up production in order to meet growing global demand, which could benefit commodity producers and put upward pressure on prices. While investments in individual mining companies is certainly an option, some investors may wish to favorably position themselves with an ETF instead [see Copper ETFs: 5 Ways To Play].

Below we highlight the available equity ETFs offering exposure to copper:

  • First Trust ISE Global Copper Index (CU): This ETF offers indirect access to copper prices by offering investors exposure to companies that are active in the copper mining industry. CU has attracted nearly $58 million in assets under management although its underlying basket is far from a pure play; CU’s portfolio includes a number of large, broad-based mining companies whose operation also focus on gold, silver, and other metals.
  • Global X Copper Miners (COPX): This ETF is less popular than CU, with only $36 million in assets under management, although its strategy is more compelling. COPX invests solely in “pure play” copper miners that concentrate exclusively on that metal, unlike CU which features exposure to other metals as well. This ETF is also 5 basis points cheaper than CU, which further increases the appeal to cost conscious investors.

More experienced investors looking to make a play on spot prices also have a number of options to choose from:

  • iPath Dow Jones Copper Total Return Sub-Index ETN (JJC): This is the oldest and biggest offering in the space with nearly $237 million in assets under management. JCC is an ETN comprised of single month futures contracts on copper which means that investors are exposed to the potential credit risks inherent for all ETNs as well as the futures-based strategy drawbacks related to contango [see also Understanding Contango Through Natural Gas Futures].
  • United States Copper Index (CPER): This futures-based product is structured as a publicly-traded limited partnership, which eliminates the fund’s exposure to the credit risks inherent in the ETN structures. This ETP further distinguishes itself from JJC by using quantitative measures based on observable market prices at the end of each month to select its futures contracts in an effort to minimize the potentially adverse impacts of contango.
  • iPath Pure Beta Copper (CUPM): This ETN separates itself from JJC by empolying a unique “Pure Beta” methodology which gives the fund flexibility to “roll” exposure into a number of different contract months. While CUPM does strive to mitigate the impacts of contango, it still exposes investors to the credit risk of the issuing institution given its product structure.

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.