December 5, 2023

FDI Forum

Earn the right Invest

3 Copper ETFs to Consider in 2023

Copper is one of the most widely used metals on the planet. It’s an excellent conductor of electricity, making it vital for electrical applications. Copper is also growing in importance as the economy turns to electricity to reduce carbon emissions and mitigate the worst effects of climate change.

Copper is an essential component for wind energy and in electric vehicles. As a result, copper usage should rise in the coming years. The increased demand should boost the price of copper, as well as share prices of mining companies focused on the metal.

There are many ways to potentially profit from the growth in the copper market. One broad approach is to invest in an exchange-traded fund (ETF) focused on the copper sector. Here’s a closer look at the top copper ETFs.

Source: Getty Images

Three top copper ETFs

Three top copper ETFs

A few ETFs provide investors with direct exposure to the copper market. They take two different approaches. One strategy is to own shares of mining companies that get a significant portion of their revenue from copper. The other strategy is to invest in contracts that derive their value from copper prices. Here are the top copper-focused ETFs:

Copper Miners ETF Ticker Symbol Assets Under Management ETF Focus
Global X Copper Miners ETF (NYSEMKT:COPX) $1.52 billion Copper miners
United States Copper Index ETF (NYSEMKT:CPER) $137.1 million Copper futures
iPath Series B Bloomberg Copper Subindex Total Return ETN (NYSEMKT:JJC) $37.1 million Copper futures

Data source: ETF Database. Assets under management data as of September 25, 2023.

1. Global X Copper Miners ETF

Global X Copper Miners ETF

The Global X Copper Miners ETF provides investors with access to a range of copper mining companies. The ETF held 39 copper stocks as of early 2023, led by the following five:

  • Zijin Mining (ZIJMF -4.46%): 6.1% of the fund’s holdings.
  • Antofagasta (ANFGF 0.4%): 5.8%.
  • Southern Copper (SCCO -1.78%): 5.7%.
  • Grupo Mexico (GMBXF 0.84%): 5.2%.
  • Freeport-McMoRan (FCX -1.74%): 5.1%.

The ETF gives investors targeted exposure to the entire copper mining industry. It allows investors to hold a broad basket of copper mining stocks for a modest ETF expense ratio of 0.65%.

One drawback to investing in copper mining stocks is that they can underperform the price of copper due to cost overruns, mismanagement, or other issues. Many also produce other metals such as iron ore, aluminum, and gold, which can dilute the impact of higher copper prices.

However, copper mining stocks can also potentially outperform copper if they can expand production amid rising copper prices. They also offer the potential to collect dividend income.

2. United States Copper Index ETF

United States Copper Index ETF

The United States Copper Index is an ETF that invests in copper futures contracts. The ETF’s objective is to reflect the return of an index benchmark for copper futures minus its expenses. The ETF’s holdings include copper futures contracts and an equal amount of cash and equivalents serving as collateral.

The ETF has a modest expense ratio of 0.88%. Meanwhile, it costs the ETF money to roll its futures contracts forward at expiration. The expenses have caused the fund to underperform its benchmark and the price of copper over the long term.

However, the United States Copper Index ETF isn’t supposed to be a long-term holding. It aims to match the daily returns of its index. It’s best used to make a short-term trade on the belief that the price of copper will make a significant near-term move.

3. iPath Series B Bloomberg Copper Subindex Total Return ETN

iPath Series B Bloomberg Copper Subindex Total Return ETN

The iPath Series B Bloomberg Copper Subindex Total Return ETN is an exchange-traded note (ETN) that invests in copper futures contracts. ETNs are similar to ETFs in that they provide investors with access to the potential returns of a market benchmark — in this case, one focused on copper.

The ETN charges a lower investor fee of 0.45%. Because of the low fee, it has more closely matched the return of the copper index it tracks.

However, like most investments that use futures contracts, the ETN doesn’t consistently deliver returns in line with the long-term performance of the underlying commodity due to the costs of rolling the contracts forward at expiration. The ETN is best for a short-term trade, not a long-term investment.

Related investing topics

Using copper ETFs

How to use copper ETFs

Copper ETFs offer investors a way to invest in the thesis that copper prices will rise in the future. However, copper ETFs can underperform the price of copper due to the risks facing mining companies and the costs associated with rolling copper futures contracts.

Of the two copper ETF strategies, copper mining stock ETFs offer the potential for upside beyond the rise in copper prices. A mining-focused ETF gives long-term investors a better return profile for the risk.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.