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. Its conductivity means copper is growing in importance as the economy turns to electricity generated by renewable energy in order to reduce carbon emissions and mitigate the worst effects of climate change.
Copper is an essential component for wind energy and making electric vehicles, so demand for copper should rise in the coming years. The increased demand will drive up 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.
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 ETF | Ticker Symbol | Assets Under Management | ETF Focus |
|---|---|---|---|
| Global X Copper Miners ETF | (NYSEMKT:COPX) | $2.1 billion | Copper miners |
| United States Copper Index ETF | (NYSEMKT:CPER) | $251.3 million | Copper futures |
| iPath Series B Bloomberg Copper Subindex Total Return ETN | (NYSEMKT:JJC) | $104.6 million | Copper futures |
Data source: ETF Database. Assets under management data as of April 19, 2022.
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 2022, led by the following five:
- Teck Resources (NYSE:TECK.B): 6.3% of the fund's holdings.
- First Quantum (OTC:FQVLF): 5.8%.
- Boliden (OTC:BDNNF): 5.7%.
- BHP Group (NYSE:BHP): 5.6%.
- Freeport-McMoRan (NYSE:FCX): 5.5%.
The ETF gives investors targeted exposure to the entire copper mining industry. It offers investors the opportunity to invest in a broad basket of copper mining stocks for a modest ETF expense ratio of 0.65%.
One drawback to 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 and aluminum, 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.
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 rather high expense ratio of 1.08%. Meanwhile, it costs the ETF money to roll its futures contracts forward at expiration. The changes have caused the fund to underperform its benchmark and the price of copper over the long term.
However, this 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 move.
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.
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 costs associated with rolling copper futures contracts.
Of the two copper ETF strategies, copper mining ETFs offer the potential for upside beyond the rise in copper prices. Because of that, a mining-focused ETF gives long-term investors a better return profile for the risk.
