The commodity ETF space has seen only a few winners so far
this year, thanks to a strong dollar and weak demand (read:
3 Commodity ETFs Still Going Higher
). Some products in the energy or soft commodities space (like
natural gas, cotton or cocoa) have added double digits but others
have seen significant weakness in the year-to-date period.
ETF investors have especially seen weakness in the industrial
metals segment of the industry. These products have been crushed
by sluggish conditions in some key emerging markets like China,
recent fears of a deepening euro zone crisis as well as worries
over continued dollar strength. These recessionary threats have
kept industrial metals under pressure and have deeply hurt one
metal in particular - copper - this year.
Copper prices have plunged by high single digits in the
year-to-date time frame and are easily underperforming the broad
markets and other industrial metals (read:
Time to Sell This Commodity ETF?
). High levels of inventories haven't helped the situation
either, especially considering the rapidly depreciating demand
The decline in copper prices was also due to the global
sell-off in gold and other commodities, weak Chinese GDP data,
and lower global growth projections by the IMF. Furthermore, the
currency issue has been especially bad this year as the U.S.
dollar has appreciated significantly, reversing a long trend in
the space. In fact, not only has the dollar been strong, it has
actually been surging against a wide range of other global
And given the uncertainty surrounding the euro with all the
Cyprus issues and ECB uncertainty, the dollar could continue to
gain. This may be especially true if investors add in the
threat of a triple dip recession in the UK, and a focused effort
by Japan to weaken its currency against the greenback (read:
Will the Dollar Strength Hurt Q1 Earnings?
Amid these weak fundamentals, copper
are facing tough times. In view of these circumstances, we do not
think that the copper price and ETFs will see any revival in
investor interest anytime soon.
Currently, there are three choices available in this poorly
performing space. Instead of staying invested in these ETFs,
investors should probably avoid or pair them with another
commodity ETF that has a better outlook in a pairs trade:
iPath Dow Jones-UBS Copper Subindex Total Return ETN
Launched in October of 2007, the ETN tracks the Dow
Jones-UBS Copper Subindex Total Return. The index delivers
returns through an unleveraged investment in the futures
contracts on copper. The index currently consists of one futures
contract on the commodity of copper (currently the Copper High
Grade futures contract traded on the COMEX).
The product is a bit expensive as it charges 75 bps in fees
per year. It trades in moderate volumes of 68,000 shares on
average daily basis that increases the trading cost in the form
of a somewhat wide bid/ask spread. The fund is also unpopular and
has attracted $99.8 million of assets so far in the year. The
fund lost over 15% of its value so far in 2013 (also read
Copper ETFs Back on Track?
JJC currently has a Zacks ETF Rank of 5 or 'Strong Sell'
implying that there is significant bearishness facing the ETN in
the months ahead.
iPath Pure Beta Copper ETN (
Launched in April 2011, this ETN seeks to match the
performance of the Barclays Copper Pure Beta Total Return Index.
Unlike many commodity indexes though, this one can roll into one
of a number of futures contracts with varying expiration dates,
as selected using the Barclays Pure Beta Series 2
This approach still offers exposure to copper, but it might
result in less contango. This can be an important factor, as
shifting from month to month in contracts can eat away at returns
during an unfavorable market situation.
However, investors should note that CUPM is illiquid with a
paltry volume of about 1,000 shares a day, suggesting a wide
bid/ask spread. As such, investors have to pay extra beyond the
annual fee of 75 bps in fees per year (read:
Trade Goldman's Commodity Picks with These
This ETN also has a Zacks ETF Rank of 5 or 'Strong Sell'.
Copper Index Fund (
This fund provides a vehicle to take directional positions on
copper prices. It tracks the changes in percentage terms of its
units' net asset value to reflect the daily changes in percentage
terms of the SummerHaven Copper Index Total Return, less CPER's
The index comprises either two or three eligible copper
futures contracts that are selected on a monthly basis based on
quantitative formulas relating to the prices of the eligible
copper futures contracts developed by SummerHaven Indexing.
The portfolio consists of copper futures contracts and may
include forwards and swap contracts. The ETF charges little lower
than 65 bps in annual fees, but has amassed $2.1 million in AUM
(see more in the
Additionally, it has a wide bid/ask spread, which increases
the total cost for this fund thanks to its illiquid nature. The
fund is down 14% year-to-date and has a Zacks ETF Rank of #5 or
'Strong Sell', suggesting that the product is also expected to
continue its bearish run over a one-year period.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
US-COPPER IF (CPER): ETF Research Reports
IPATH-PB COPPER (CUPM): ETF Research Reports
IPATH-DJ-A COPR (JJC): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report