Supplies for copper remain relatively tight despite rising stockpiles in warehouses. Those supplies should remain that way as mining costs continue to rise. Investment bank Barclays (BCS) estimates that producing copper is now more than 87% more expensive to produce today than it was back in 2007. Those higher labor and energy costs will keep a tight lid on future supplies as producers limit production to save money.
At the same time, China still is consuming tons of copper and will do so for the foreseeable future. Despite February’s drop in import demand, China’s thirst for copper is already 41% higher this year than last. Then there is the fact that Beijing has pledged to increase electrical grid infrastructure spending by 13% this year. Wiring up all of China’s households will take an awful lot of the red metal.
All of this could put plenty of pressure on the world’s tight supplies. And given that copper now sits at lows not seen in years, investors looking for a contrarian play might want to snag some exposure to copper. Here are three ways to do that:
iPath DJ-UBS Copper ETN (JJC)
With more than $80 million in assets and swift trading volume, iPath DJ-UBS Copper ETN (JJC) could be the easiest way for investors to get their hands on the red metal. The fund is an exchange-traded note (ETN) backed by Barclays that tracks near-dated high grade copper futures contracts traded on the Comex. So far, the fund has fallen right along with the downturn in copper prices and currently sits at five-year lows.
With expenses of 0.75%, or $75 per $10,000 invested, JJC isn’t cheap … but it is a heckuva lot cheaper than opening a futures account!
United States Copper Index Fund (CPER)
One of the main sticking points with JJC — and other ETNs, for that matter — is that in addition to the investment risk, you tack on counterparty risk of the issuing firm. See, ETNs are technically bonds that promise to track an index.
For those investors wanting own the physical futures contract, United States Copper Index Fund (CPER) is the only way to do it in ETF form. CPER uses a unique quantitative formula to select which futures contracts to buy. The fund is rebalanced monthly and has dropped by less than copper prices. Expenses run 0.65%, and investors will receive a K-1 statement come tax time.
First Trust ISE Global Copper Index (CU)
Betting on the producers of the red metal could be an equally as compelling play. As it stands to reason, rising copper prices will boost profits for those firms that dig it out of the ground.
The First Trust ISE Global Copper Index Fund (CU) spreads its $30 million in assets around 24 different copper miners, the bulk of which are located in the Anglo nations of Canada, Australia, the United States and the U.K. That includes names such as Antofagasta (ANFGY), Southern Copper (SCCO) and Rio Tinto (RIO). That offers some stability, as copper could be a rocky ride in the next few months.
Expenses for CU run 0.7%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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