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Copper ETF Exchange-Traded Funds Available in the USA

By Edited Nov 13, 2013 1 2

Copper represents a leveraged play on the overall world economy because the orange metal is an important part of many infrastructure and construction projects - especially in plumbing, roofing, wire, and electronics. Copper is also a monetary metal that is used in coins and has been for thousands of years.

The most visible CU product to most people, the copper colored penny, is no longer made of nearly pure copper. Instead, since 1982, the US has issued copper plated zinc pennies.  Copper remains an important component (75%) of US nickels and part of the alloys in all other US coins. 

Copper ETFs and other Exchange-Traded Copper Investments 

There are a few different ETFs and ETPs that focus on copper and copper price speculation.  The ones available in the USA currently include:

iPath Dow Jones-UBS Total Return ETN (JJC)

The first copper exchange-traded product on the market was iPath’s JJC.  It offers investors an ETP path to invest in copper futures contracts in a multilayered way. JJC is linked to the Dow Jones-UBS Commodity Sub-index Total Return , an index comprised of a single futures contract on copper.  Therefore, an investor with a options enabled account can mimic the returns of JJC by just buying the matching futures contracts each month.

Because JJC uses a futures-based strategy, the fund’s returns depend on a combination of the change in copper's spot price and the slope of the futures curve (mostly the change in spot).  Investors are also exposed to the potential credit risks inherent for all ETNs.  The fund does not actually own any copper stocks, it buys and sells paper contracts for the right/obligation to buy copper in the future. 

iPath Pure Beta Copper ETN (CUPM)

CUPM is slightly differant. It is an exchange-traded note that exposures investors to copper futures contracts. Unlike JJC which follows a fixed schedule tied to an index, CUPM ETN follows a unique methodology they call Pure Beta.  In Pure Beta the fund managers have flexibility to spread exposure into a number of different contract months (various length futures contracts).  Under the Pure Beta plan, management bases its decisions on what they feel are observable price signals and the slope of the copper futures curve.

JJC’s unique methodology is designed to mitigate inherent drawbacks of futures-based products. However, the fund’s exchange-traded note structure (essentially a debt) also expose investors to potential credit risk if the issuer defaults.

United States Copper Index Fund (CPER)

United States Copper Fund's offering is an ETF structured as a publically traded limited partnership.  Therefore fund holders are equity partners, not holders of debt like in the the case of CUMP, eliminating the credit risk of issuer default on a debt instriment. 

The fund is fully collateralized with three-month U.S. Treasury Bills using some funds to buy a portfolio of rolling copper futures contracts.  Similar to the way that CUPM operates, management of CPER uses quantitative measures based on observable market prices at the end of each month to limit fund exposure to the negative impacts of fund exposure to futures contracts.  When management believes the markets are in backward motion the ETF will pick futures contracts that maximize the potential benefits of price reductions. When copper futures markets are expected to move higher, CPER will generally go further down the maturity spectrum to minimize the adverse impact of a “roll yield.”

First Trust ISE Global Copper Index Fund (CU)

First Trust ISE's CU ETF invests in stocks of copper mining companies.  While copper miners benefit and suffer from movement in spot price (and not always in the way that you might think because of their hedging strategies) investing in copper mining businesses is very different than investing in the actual copper bullion.  Mining is inherantly a risky business that includes many political, management, credit, and exploration risks other than the spot price of metal falling.

However, it is fair to say that copper mining company profitability does depend on the prices of copper over the long run for success so copper mining stocks tend to exhibit a strong correlation to the metal’s spot price over time.  CU’s strategy of investing in copper equities allow investors to add copper exposure to their portfolios without engaging in a future-based commodity strategy.

Few mining companies engage in mining only one metal, partly because metals tend to be found together. Therefore the fund uses a modified linear weighting methodology to distribute the fund’s allocations based on each security’s revenue exposure to copper production. In plain English, owning CU actually means indirectly owning a portfolio of broad-based mining companies whose operations and profitability may focus on gold, silver, copper or other metals in addition to copper.

Global X Copper Miners ETF (COPX)

Similar to CU, Global X Copper Miners COPX ETF invests in equities with exposure to copper by replicating the Solactive Global Copper Miners Index , which is includes common stocks, ADRs and GDRs of selected global companies in the CU mining industry. The fund tends to invest in “pure play”  miners that concentrate exclusively on copper unlike CU ETF's broader based mining company share approach. 

Alternatives to These Paper ETF Investments

None of the copper ETFs actually own copper bullion, though investing in companies with proven copper reserves is a form of copper bullion investing.  If you want to take an actual position in copper bullion, consider checking out copper pennies which are 95% copper because US copper pennies are actually worth more than a penny.

Copper Pennies by the Ton
While there is currently a melt ban on US pennies, that has not stopped investors from buying up tons of pennies as a hedge against inflation and a way to get direct exposure to copper bullion while commodity prices are depressed due to the world economic situation.

Copper bullion pennies can be bought through eBay where there is a Cu bullion area. Also you consider contacting private sellers on realcent.org the primary forum for those interested in CU bullion.  The Copper Cave is a good place to check out smaller lots of bullion pennies while for large volumes, the PortlandMint.com is the nation's leading supplier of bullion grade sorted pennies.

(photo is of 1 ton of copper bullion pennies at the Portland Mint)

Here is a video from Nightline showing more about penny bullion mining.


Penny Bullion Mining and Investing


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Comments

Aug 4, 2012 5:28am
kmancloquet
Nice article. I too have heard about the penny deal, with the copper in pennys. I am having a hard time finding some for sale, for a good price though. Ebay has overpriced them in my opinion.
Aug 4, 2012 6:41am
CapstoneTrends
This is great, JadeDragon. I was unaware that there are so many ways to get copper exposure. I'm curious if any of these have real intraday volume on a regular basis - or if you get whacked by the BID/ASK spread. I'll have to go look...
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