Updated: Aug 29, 2018 at 9:00AM
Published: Jun 30, 2016 at 5:24PM
Copper was first mined by humans over 10,000 years ago, when our ancestors turned the metal into some of the first coins and ornaments known to mankind. Today, copper remains a critical component in a huge variety of industrial and commercial processes. For investors, one of the simplest and least expensive ways to add copper exposure to their portfolio is through an exchange-traded fund, or ETF.
iPath Bloomberg Copper Subindex Total Return ETN
iPath Pure Beta Copper ETN
Global X Copper Miners ETF
United States Copper Index Fund
Data sources: Company websites. Returns current as of 05/31/2016 for iPath and Global X Copper Miners ETF. Data for United States Copper Index Fund current as of 03/31/2016.
Upsides of investing in a copper ETF
The primary reason investors turn to copper is as a stable store of value and a hedge against inflation. The metal is a reasonable choice for these purposes because it has a wide variety of economic uses in industries around the world.
Copper is malleable, resistant to corrosion, and is an efficient conductor of heat and electricity. Its widely used in modern motors, wiring components, heating and cooling systems, radiators, and telecommunication infrastructure. For context, if you stretched out all the copper wire used in a single, modern car, the wire would stretch nearly a mile in length.
Image source: Getty Images.
Copper is also a common metal found in alloys, expanding its uses even more. Brass is made by combining copper with zinc. Bronze is copper combined with tin. Most commercial and military ships are coated with a copper and nickel alloy; the coating prevents corrosion in seawater and protects the ships hull from damaging sea life, like algae and barnacles.
The mining of copper is spread all over the world, creating a stable supply to match the worlds demand for the metal. The South American countries of the Andes Mountains, led by Chile, produce the most copper in the world. The U.S. produces just under 10% of global supply.
The risk in these copper exchange-traded funds
Like any other investment, putting a portion of your nest egg into copper comes with risk. The performance of these funds over the last year leaves no doubt.
The risks in buying a copper ETF are twofold. There is the macroeconomic risk associated with investing in any commodity and the specific risks associated with the funds themselves.
In the first regard, its difficult to predict how any commodity price will move over time. Changes in global economic forecasts -- either expectations or reality -- can drive prices higher or lower. From 1989 to 2004, the price of copper remained fairly stable in dollar terms, trading between $0.50 and $1.50 per pound. Prices spiked at that point, all the way up to $4 to $4.50 per pound at its peak during the Great Recession. Since then, prices have gradually retreated to where they are today, around $2 per pound.
Beyond the macroeconomic uncertainty, there is also risk in the individual exchange-traded funds. For example, the largest dedicated copper ETFs are tiny by Wall Street standards. That applies to both the assets in the fund and the average daily trading volumes.
The iPath Bloomberg Copper Subindex Total Return ETN (NYSEMKT:JJC) is the largest copper fund in the list above, with just $35 million in total assets under management and an average monthly trading volume of 49,000. Compare that to more popular ETFs that track other assets, indices, or commodities, which can have assets under management well above $1 billion and trading volumes several times greater.
These issues are even greater at some of the other ETFs. The United States Copper Index Fund (NYSEMKT:CPER), for example, has just $2.4 million in assets under management and 1,759 average monthly volume. That doesnt necessarily mean the fund is a poor investment, but it does add risk that other options may not have.
Many investors view copper as a stable, effective store of value, helping them to hedge against inflation risk over time. If youre in that camp, an exchange-traded fund that tracks copper commodity prices or copper miners can be a great way to easily add copper exposure to your retirement portfolio. Before you buy, though, make sure you understand the risks associated with these small, relatively illiquid investment funds.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.Jay Jenkins has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.>
Motley Fool Returns
Stock Advisor S&P 500
Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Stock Advisor list price is $199 per year.
Stock Advisor launched in February of 2002. Returns as of 08/31/2021.
Cumulative Growth of a $10,000 Investment in Stock Advisor Calculated by Time-Weighted Return
Tell us about you
Find us at the office
Eastmond- Sukel street no. 62, 79540 Hanga Roa, Easter Island
Give us a ring
+74 201 709 645
Mon - Fri, 9:00-15:00