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3 Red Hot Base Metal ETFs

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Metals are riding high on favorable demand-supply dynamics and a subdued greenback. Powershares DB US Dollar Index Bullish Fund (UUP - Free Report) is off about 8.2% so far this year and has lost about 0.8% in the last one month (as of August 17, 2017). Since most commodities are priced in the greenback, a dip in the U.S. dollar bodes well for metal investing (read: 3 Reasons to Buy Gold ETFs Now).

Below we highlight three base metal ETFs that have stayed strong lately and may keep up the momentum (see all Industrial Metals ETFs here).

iPath Pure Beta Aluminum ETN

Aluminum prices crossed over $2,000 a metric ton for the first time since 2014 this year. The move came on the back of China’s efforts to lower illegal or polluting capacity. The news of authorities in Shandong — China’s top aluminium producing province — ordering 3.21 million tons of illegal smelting capacity to be closed by July end may have cause the spike.

As per the source, the Shandong province announced that it would ask aluminum producers that fall short of emissions standards to suspend operations. As a result, the possibility of an output crunch led to a boost in prices.

This product looks to limit the impact of contango while also providing collateralized returns from U.S. T-Bills.

United States Copper Index Fund (CPER - Free Report)

Copper price jumped to a 32-month high on bullish hedge fund bets. Deficit concerns are rising in copper investments. In early August, research house Jefferies indicated that prices may remain erratic in the near term and rise to $2.75/lb in 2018 and $3/lb in 2019 from the current $2.87/lb. Jefferies even sees the possibility of a $4/lb or above pricing in copper in the next five years.

China's manufacturing activity growth picked up in July as output and new orders grew at the quickest rate in five months, as per IHS Markit. Since the country is the world’s biggest consumer of this industrial metal, making up roughly 40% of the global copper demand, the uptick in Chinese manufacturing bodes well for copper demand.

As per a source, some outages including a 43-day strike at BHP's Escondida mine in Chile which was called off in March and the ongoing strike at Freeport McMoRan's Grasberg operations in Indonesia have supported prices.

The underlying index of the fund is designed to be an investment benchmark for copper as an asset class. The index is composed of copper futures contracts on the COMEX exchange. The index looks to maximize backwardation and minimize contango while utilizing contracts in liquid portions of the futures curve.

iPath Pure Beta Nickel ETN

Nickel prices have rallied in the last one month. The recent resurgence in prices was due to bargain hunting as the metal touched an 11-month low in May. Also, production in Philippines — one of the top nickel producers — dropped 15% in the first five months of this year. However, the outlook for nickel investing is still murky with possibilities of higher production in Indonesia and Philippines (read: Philippines GDP Up In Q2: ETFs in Focus).

The note looks to reflect the returns that are available through an investment in the futures contracts in the nickel markets. The index consists of a single futures contract but has a unique roll structure which selects contracts using the Pure Beta Series 2 Methodology. This strategy looks to limit the impact of contango while also providing the collateralized returns from U.S. T-Bills.

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