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Decade-High Copper Price Drives These ETFs Higher

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Commodities have been soaring and hit their highest levels in eight years. While the shine of gold and silver wanes, energy and industrial metals are currently red hot on hopes of speedy economic recovery that will lift the demand for the commodities. In particular, copper skyrocketed to a decade-high and has doubled since the March lows as the world recovers from the pandemic (see: all the Industrial Metals ETFs here).

In fact, the red metal is heading for a consecutive eleventh monthly rise in February on expectations that post-crisis demand will outstrip near-term supply. This is especially true as supply tightens and demand outlook brightens. Inventories of the top consumer of the raw material – China - dropped to near-decade lows at a time when demand is supposed to be tepid because of the Lunar New Year holiday. The tight supply conditions are expected to persist given environmental policies accelerating the use of copper and rising investments in renewable energy and electronic vehicles, which will require huge volumes of the raw material.

Meanwhile, an unprecedented stimulus coupled with near zero interest rates will fuel demand and lift inflation, thereby putting pressure on the U.S. dollar. A weak dollar makes dollar-denominated assets cheaper for foreign investors, potentially spurring demand for the red metal. Further, continued bullish sentiment toward base metals after the Chinese New Year will continue to drive the price higher.

Apart from these, the metal market is benefiting from the positive roll yield in the futures market. This is because the market is currently in a state of backwardation, where spot contracts are trading at a premium to futures. This signals that the copper market is tightening and demand is robust, paving the way for the rally in base metal. This trend is likely to persist at least in the near term, acting as the catalyst for the commodity.

Surging copper prices are also providing a boost to miners, driving up the stock prices and raising the prospect of more blockbuster returns to shareholders (read: Industrial Metal ETFs Rallying Hard).

Amid the bullish backdrop, copper ETFs have been surging over the past year with room for more upside. We have highlighted them below:

Global X Copper Miners ETF (COPX - Free Report) – Up 141.6%

This ETF offers global access to a broad range of copper mining companies. It tracks the Solactive Global Copper Miners Total Return Index and holds 30 stocks in its basket. Canadian firms take the largest share at 32.5% while Britain and United States round off the next two spots. The product has managed $545.6 million in its asset base while charging 65 bps in fees per year. It trades in a good volume of 343,000 shares a day on average.

United States Copper Index Fund (CPER - Free Report) – Up 61.8%

This fund seeks to track the performance of the SummerHaven Copper Index Total Return, plus interest income from CPER’s holdings. The index provides investors exposure to front-month copper futures contract traded on the NYSE Arca. The product has accumulated $145.6 million in its asset base and charges 80 bps in annual fees. It trades in an average volume of 133,000 shares a day and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 4 Best Commodity ETFs of 2020).

iPath Bloomberg Copper Subindex Total Return ETN (JJC - Free Report) – Up 60%

This ETN tracks the Bloomberg Copper Subindex Total Return, which seeks to deliver returns through an unleveraged investment in the futures contracts on copper. The index currently consists of one futures contract on the commodity of copper (currently the Copper High Grade futures contract traded on the COMEX). The product charges investors 75 bps a year in fees, and has a lower level of AUM of $58.1 million. It trades in paltry volume of about 8,000 shares a day on average.

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