Copper prices have been on a real hot streak in 2024, with July-dated copper futures (HGN24) - the most active contract - soaring to a new two-year high earlier today on the heels of strong manufacturing data out of China. The industrial metal has soared 16% year-to-date, with 12.8% of that gain in the last month alone. It's outshining even the eye-catching performance of higher-brow metals like gold (GCM24) and silver (SIN24), thanks to a mix of rising industrial demand, supply snags, and a surge in eco-friendly policies.
Copper prices pulled back today, closing sharply lower after setting that new high - and based on an extended stay in technically overbought territory, the industrial metal could be due to consolidate some gains in the short term.
But longer-term, Senior Market Strategist John Caruso of RJO Futures told MarketWatch that rising copper demand looks “increasingly inevitable” amid the green energy transition. Emerging tech areas like artificial intelligence (AI), electric vehicles (EVs), solar energy, and wind energy all require copper somewhere along the way - and that's including from the ground up. This demand boost isn't just about the end products for the AI and EV industries; it's also driven by the very infrastructure of green tech, where copper is absolutely key.
For example, analysts are talking about how the data centers that power AI servers could add an extra 1 million metric tons to copper demand by 2030 as the grid rushes to keep up. Plus, copper’s role in renewable energy and EV manufacturing could kick off a multi-year supercycle as corporations and governments continue to shift away from fossil fuels.
On the supply side, factors like smelter outages, a ban on Russian metal deliveries, and other supply chain issues have further tightened the global copper market. Analysts are even predicting significant deficits; Bank of America (BAC) bumped up its 2024 copper price forecast to $9,321 per metric ton, and Citigroup (C) called for a secular bull market in the base metal, noting that “Explosive price upside is possible over the next 2-3 years.”
With copper looking like it’s set for a longer-term bull run amid rising demand from the AI and clean energy industries, it might be a smart move for investors to look into ETFs like the United States Copper Index Fund (CPER) and Global X Copper Miners ETF (COPX).
CPER: Direct Copper Price Exposure via Futures
The United States Copper Index Fund (CPER) is a direct line into the copper futures market, comprised of a basket of COMEX-traded copper futures designed to reflect the performance of the SummerHaven Copper Index Total Return. The near-term copper futures contracts underlying the fund are selected to “maximize backwardation and minimize contango,” which will make perfect sense to you futures traders out there. Essentially, the futures contracts are selected for optimal liquidity and to avoid pricing aberrations on the short or long end of the futures curve.
This focus helps the ETF closely track the most immediate price movements of copper. To optimize returns and manage risks, the fund uses a quantitative optimization process to select two or three copper futures contracts each month, usually involving 1-3 different months. For example, in the month of March, CPER held a combination of copper futures contracts expiring in May, July, and September 2024.
Like copper, CPER is a technical standout, up 17% YTD and 12.7% in the last month. Unlike some other ETFs based on stocks, CPER doesn't hand out dividends.
CPER manages assets worth around $202 million. It might not be the biggest fund out there, but it plays a significant role in the niche of copper investments.
Similarly, the fund's expense ratio is 0.88%, which might seem a bit high compared to more straightforward ETFs. However, for a commodity pool that handles the complexities of futures contracts, this fee is pretty standard. These costs are associated with actively managing and rolling over the futures contracts that give the ETF its value.
COPX: Equity Exposure to Copper Miners
The Global X Copper Miners ETF (COPX), is a solid choice for those looking to add exposure to the copper mining sector. It's been around since 2010, and aims to track the Solactive Global Copper Miners Total Return Index. This ETF isn't just about holding copper; it's about investing in the companies that mine this valuable metal, offering another angle on this commodities play.
The year 2024 has been pretty good to COPX, which boasts a year-to-date increase of 22%, including a 7.8% rise over the past month.
For dividend lovers, COPX offers a yield of 1.8%, with the most recent semiannual dividend payment being $0.391 on Dec. 28, 2023.
With a hefty $2.36 billion in assets under management, COPX is a major player in the copper mining ETF market. The fund also offers higher liquidity, with average volume surpassing 2 million shares - and the expense ratio of 0.65% is not unreasonable, considering the specialized focus of the fund and its global investment reach.
COPX's global presence is notable, with more than 56% of its holdings allocated outside the U.S. and Canada. Taking a look inside COPX's portfolio, the top five holdings include Ivanhoe Mines (IVPAF), Antofagasta PLC (ANFGF), Lundin Mining Corp (LUNMF), Southern Copper Corp (SCCO), and BHP Billiton (BHP). This diversification helps to mitigate not only equity-specific risk, but also region-specific pitfalls.
So whether you want to add copper exposure through straight-up futures, as with CPER, or get some skin in the mining game with COPX, both of these ETFs could be solid options to cash in on the base metal's expected bull run. With AI, EVs, and green tech all driving demand, while supply struggles to keep up, the stage is set for a copper boom.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
