The Four Best Copper ETFs of 2017

Copper may not be as shiny as gold or silver, but its importance as an industrial metal means that, at the very least, you should consider adding it to your portfolio. A recent price drop could provide an opportunity for fledgling copper investors.

Instead of opening up a position in one of the many producers and miners, many people flock to exchange-traded funds, which help diversify and balance a portfolio with broad exposure to the industrial metal. With four ETFs to choose from, investors have some options.

Source: U.S. Geological Survey.

Copper is one of the most useful metals on earth. Its strength, malleability, and conductivity make it useful in a wide range of fields: energy, transportation, infrastructure, electronics, and more. Aggressive growth in China and India means that the bull market for copper might still be going strong. And finally, labor disputes in two of the largest mines -- Escondida in Chile and Grasberg in Indonesia -- have brought the price of copper stocks and ETFs down for a prime buying opportunity.

This brings up the next question: Should you invest in one of the few copper ETFs, or directly in a copper supplier, like Freeport McMoRan, Rio Tinto PLC, or BHP Biliton.

There are myriad benefits to investing in an ETF, instead of directly with a producer like Freeport. For one, you're spreading your bet across all the major producers instead of focusing on just one. Also, ETFs tend to have more liquidity, which is especially important when considering the volatility of precious metals.

While it's important to take a long-term approach when investing in metals due to short-term volatility, the fact that ETFs are more liquid assets mean it's easy to buy and sell shares. Below is a list of four copper funds that are enticing to new investors.

(Returns as of 5/25/17) Data Source: Fund websites, Google Finance, Yahoo Finance. YTD = year to date

There's plenty to love about the largest copper fund, iPath Bloomberg Subindex ETN (JJC). For one, JJC is the oldest exchange-traded copper product on the market, so it has the history and the pedigree. Since it's the largest fund, it's extremely liquid, and there's a large volume traded intraday, making entry and exit fairly easy. It's also returned over 25% in the past year.

The big difference is that this is an exchange-traded note, so it's essentially an unsecured debt note. Unlike ETFs, exchange-traded notes don't actually hold the assets they track. ETNs are debt instruments backed by large investment banks. JJC, for example, is backed by Barclays, one of the oldest banks in the world, which has a stellar credit ranking.

If you're looking for a more standard investing opportunity in an ETF, consider The Global X Copper Miners ETF (COPX 0.03%), which was the best performing copper fund in 2016. One of the drawbacks is its lack of volume -- the average daily dollar volume per day is $939.6K, two thirds the volume of JJC.

Another big difference is that COPX focuses on mining companies, which have higher growth potential and more volatility, as opposed to copper futures, which tend to be more steady and conservative. Despite lower volume and wider spreads, it's a good play for copper equities rather than copper commodities.

JJC 1-Year Price Returns (Daily) data by YCharts.

Given the information above, even though precious metals can be volatile short-term investments, with prices frequently fluctuating due to changing economic forecasts, copper remains a stable, if not bullish, long-term investment and a valuable addition to any diversified portfolio.