Base Metals

Following copper’s 2010 bull run, exchange-traded products have been gaining interest with investors seeking exposure to the copper market.

By Leia Toovey- Exclusive to Copper Investing News

copper ETP investmentFor investors looking to bet on copper prices, exchange-traded products (ETPs) are an excellent way to gain wider exposure to the red metal compared to picking up one or two copper stocks. A handful of copper-focused ETPs offer investors unique ways to invest in the red metal.

Copper ETPs attracted attention during copper’s bull run in 2010 resulting in new products being offered. The most recent addition to the list of copper ETPs is the United States Copper ETF (CPER) that launched mid-November and  iPath Pure Beta Copper ETN (CUPM) that launched in April.

In September, BlackRock (NYSE:BLK) and JPMorgan (NYSE:JPM) filed applications with the Securities and Exchange Commission to offer ETFs that will buy copper and store it for investors. The ETFs are to be the first physically-backed copper ETFs in the US.

The United States Copper ETF (CPER)  

CPER was developed by SummerHaven Investment Management and the United States Commodities Fund LLC. In response to the high storage cost of backing a fund with physical copper, the fund deals only with futures contracts. CPER’s buying strategy was designed to minimize the ill-effects of contango, which occurs when the soonest-to-expire contract is less expensive than contracts that expire in later months. When a contract is in contango, a fund loses some money because fund managers are forced into paying a premium to the price of the expiring contract when buying a new contract. CPER minimizes the effects of contango by shifting buying activities on a monthly basis to the lowest-cost contracts over an 18-month expiration cycle. CPER also protects against the opposite scenario of backwardation (when the nearest contract is the most expensive) by taking positions in the two eligible copper contracts with the highest annualized percentage price difference, each weighted at 50 percent of the portfolio.

CPER comes with a 0.95 percent annual expense ratio, compared with 0.70 percent for the iPath ETN, CUPM.

iPath Pure Beta Copper ETN (CUPM)

CUPM provides investors with exposure to copper futures contracts. The note is linked to the Barclays Capital Copper Pure Beta TR Index that gives the fund flexibility to “roll” exposure into a number of different contract months. This is different than many commodity indexes which roll their exposure into the corresponding futures contract on a monthly basis in accordance with a predetermined roll schedule. Barclays Capital Pure Beta Series 2 Methodology bases its roll decisions on observable price signals and the slope of the copper futures curve. The index is comprised of a single exchange-traded futures contract, except during the roll period when the index may be comprised of two futures contracts.

iPath Dow Jones-UBS Total Return ETN (JJC)

JJC is a sub-index of the Dow Jones-UBS Commodity Index Total Return and reflects the returns that are potentially available through an unleveraged investment in the futures contracts on copper (currently the Copper High Grade Futures Contract Traded on the COMEX) plus the rate of interest that could be earned on cash collateral invested in specified Treasury Bills.

To deal with contango, JJC has an index that allows for rolling exposure to an eligible contract, and selects the one that minimizes contango.

Global X Copper Miners ETF (COPX)

COPX seeks to replicate the Solactive Global Copper Miners Index. The Solactive Global Copper Miners Index is designed to reflect the performance of the copper mining industry. It is comprised of selected companies globally that are actively engaged in some aspect of the copper mining industry, such as copper mining, refining, or exploration. The fund tends to invest in “pure play” copper miners that focused exclusively on copper.

First Trust ISE Global Copper Index Fund (CU)

CU is an ETF that seeks investment results that correspond to the ISE Global Copper Index. CU takes an indirect approach to copper by investing in stocks of companies that are active in the copper mining industry. Companies in CU’s portfolio include broad-based miners with exposure to metals other than copper, such as gold and silver.

Other options

There are plenty of funds that offer limited exposure to copper. Another way to indirectly invest in the copper market is by  investing in funds that have a “regional” focus. Examples of these regional funds include the MSCI Chile Index Fund (ECH), which offersexposure to the Chilean equity market, and the EGShares Emerging Markets Metals & Mining Exchange Traded Fund (EMT). EMT invests in companies whose revenues are generated in the areas of diversified metals and mining.

 

Securities Disclosure: I, Leia Toovey, hold no equity interests in any company mentioned in this article.

MARKETS

Markets
TSX20179.81+187.93
TSXV680.49+7.47
DOW33761.05+424.38
S&P 5004280.15+72.88
NASD13047.19+267.27
ASX7032.50-38.50

COMMODITIES

Commodities
Gold1797.77-1.36
Silver20.79+0.01
Copper3.63-0.04
Palladium2232.58+19.58
Platinum962.86+1.86
Oil91.45-0.64
Heating Oil3.51-0.01
Natural Gas8.62-0.14

DOWNLOAD FREE REPORTS

×