Copper Bottomed: How to Make Solid Investments in Copper ETFs
Copper is in practically every electronic, even the one you're using to read this. Maybe investing in a copper ETF isn't such a bad idea?
Updated Jul 13, 2022
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Commodities investing is a game of risk vs reward. You can win big if the price of the commodity you invest in goes up, but you can lose just as big if its price goes down. So how do you know if the price of a commodity will go up or down? The truth is you don't. That is what makes investing in copper so thrilling.
Each copper index fund carries a portfolio of risks and benefits, so picking which one to invest in largely depends on your investing goals.
From energy infrastructure and buildings to cars and consumer electronics, almost everything industrially manufactured is made, in part, from copper. Copper is a crucial metal in modern society, so it's not hard to figure out why it's among commodity traders' top holdings. Here's what you'll need to know before investing in copper ETFs.
What is a copper ETF?
What is a copper ETF?
Copper exchange-traded funds (ETF) are securities that track copper as an underlying asset. Funds are often used as investment devices for gaining exposure to a portfolio of several stocks or commodities. This means you can buy shares of a fund that trades copper futures or an index of copper mining companies to gain exposure to the underlying asset. Since they're traded similarly to stocks, indices make it easier and more convenient to invest in copper and other commodities that can't otherwise be traded on the stock market.
Latest year returns
*Data pulled on 07/11/2022
Copper ETN vs ETF
Another way to invest in copper is to buy a copper exchange-traded note (ETN). Unlike copper ETFs which bear a greater resemblance to stocks, copper ETNs are more similar to bonds. The main difference between an ETN vs ETF is how they track the underlying asset. Most funds are actively managed to make a profit, but ETNs are more strongly correlated with the underlying asset because they're virtually unmanaged.
ETNs are more impacted by the supply and demand of the underlying asset because they represent distant futures contracts. That means that the price of an ETN is subject only to market forces until its maturity date—when investors get paid based on the asset's closing price. While ETNs are less common than a fund, it's good to be familiar with them as an option when investing in a copper index.
Comparing the best copper indices
Comparing the best copper indices
The top copper ETFs aim to reflect the price and yield performance of their underlying copper index, but each one has a different way of doing it. For instance, an ETF can be a commodity index tracking the futures market or a fund that invests in companies involved in producing the commodity itself. Single commodity indices vary a lot, so you should always evaluate the risks of copper ETFs and set a realistic investment return target before buying shares.
Regardless of how you choose to invest, getting exposure to the copper market is super easy with TradeStation.
It's a commission-free trading platform where you can sign up to invest in copper stocks and ETFs or even open a commodity futures account. There are no fees and no minimums, and you can invest in dozens of other assets in addition to copper.
United States Copper Index Fund (CPER)
The best way to gain exposure to copper commodities is investing in a copper index fund that trades copper futures contracts. The United States Copper Index fund is the premier ETF dealing in copper futures contracts. One thing that makes CPER an excellent copper ETF is that it's actively managed, which means investors can get higher market value than from investing in the commodity directly.
While CPER might perform better than the underlying copper market, this comes at the cost of a higher expense ratio than other copper ETFs. Another downside is that the volatility of commodities markets can make copper futures contracts riskier to invest in. Nevertheless, CPER is the most accessible exchange-traded fund to provide investors with exposure to copper derivatives.
Global X Copper Miners ETF (COPX)
If you're looking to invest in a copper mining industry ETF then you should consider adding Global x Copper Miners ETF shares to your portfolio. This copper fund invests in the stocks of global companies across the copper mining and materials sectors, which means you can invest in copper with the Copper Miners ETF while maintaining limited exposure to the underlying commodity. Put simply, COPX gives you the same benefits as copper ETFs without the risks of future contracts.
By virtue of dealing in copper stocks, the Global x Copper Miners ETF will probably be less volatile compared to a copper index with exposure to eligible copper futures contracts. This also means COPX is less risky than commodity ETFs because its performance depends on the stock market rather than the commodities market. While the performance of COPX mirrored that of copper over the past year, it's more likely to satisfy long-term investors with semiannual dividends.
iPath Series B Bloomberg Copper Subindex TR ETN (JJC)
The next two copper ETFs on this list are actually ETNs and the first of which is iPath Series B Bloomberg Copper Subindex. This copper index tracks the performance of the Bloomberg Copper Subindex Total Return and it's comprised of copper futures contracts. What makes JJC different from copper ETFs is that it's a bond that matures on January 23, 2048—investors will receive a payout based on that day's copper closing price.
This difference won't matter to most investors because they can buy and sell JCC shares just like they would any ETF. However, the nuance is in how the market for the underlying commodity impacts the share price. Investors might prefer an ETN for the longer maturity dates of their underlying copper futures contracts because it means its price will correlate more closely with the price of copper compared to copper ETFs. Overall, this copper ETN is better suited for risk-averse investors looking for long-term performance and minimal expenses.
iPath Bloomberg Copper Subindex Total Return ETN (JJCTF)
Another ETN tracking the Bloomberg Copper Subindex Total Return is the iPath Bloomberg Copper Subindex. The JJCTF is similar to JJC in that its underlying index is comprised of copper futures contracts and it matures on a determined date. Both JJC and JJCTF have seen similar investment results, but the main difference is that the latter matures on October 22, 2037.
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Another important distinction is that JJCTF has a significantly higher expense ratio which, along with its closer maturity date, contributes to the market price of one copper ETN being higher than the other. JJCTF is also more volatile than other copper funds because it's closer to maturity, but this is mostly a side effect of a more direct correlation with the underlying commodity—corresponding closely to the price of copper might be a positive attribute to some investors.
Horizons Copper Producers Index ETF (COPP)
One of the newest ways to invest in the copper market is Horizons Copper Producers Index ETF. This Canadian fund launched in May 2022 only has companies with exposure to North American copper mines among its portfolio holdings. Not only is it one of the newest natural resources ETF, but COPP is also great for gaining exposure purely to North American copper production. As a Canadian ETF, COPP isn't currently tradable on the NYSE Arca market.
I have copper rivets on my jeans.
Metal investments: precious or industrial?
How to invest in copper ETFs
How to invest in copper ETFs
Copper is one of the best commodities to invest in, and there are several copper ETFs on the market. But the hard part is actually choosing the right one to buy. Each copper index fund carries a portfolio of risks and benefits, so picking which one to invest in largely depends on your investing goals. An investor looking for higher returns might choose a futures fund like the United States Copper Index while someone looking for a safer copper investment would likely prefer COPX.
If you're not sure what your risk tolerance is, a great place to explore copper ETFs is Robinhood. If you don't already know, Robinhood is one of the top trading platforms for stocks, ETFs, options, and crypto.
There's no better place to start investing than Robinhood because it provides you with loads of insights into each asset to help you be an informed investor. If that's not enough, new users get free stock just for signing up. So what are you waiting for?