Analysis

A breakdown of copper ETFs as BlackRock enters market

There are three copper ETPs listed in Europe

Tom Eckett

Copper smelter

The increasing demand for copper exchange-traded products (ETPs) has been one of the stories of the year as investors bet on China’s reopening and the ongoing transition to renewable energies.

Supply-side constraints combined with the end of lockdown restrictions in China sent copper soaring at the start of the year.

Recognising this, investors piled $1.6bn into the WisdomTree Copper ETC (COPA) in the first three months of the year, according to data from ETFbook, amid ongoing mining disruption in Chile, Panama and Peru.

However, with the impact of China’s reopening failing to materialise and global demand weakening, the copper price started to collapse in Q2. This trend reversed towards the start of Q3 off the back of the improved US growth outlook, with copper soaring 7.1% in July alone.

Known as Dr. Copper for its ability to temperature check the outlook for the global economy, the metal has been used by human civilisation for thousands of years due to its durability and conductivity.

Today, an increasing number of ETF issuers in Europe including WisdomTree, Global X and BlackRock offer access to copper via futures contracts and the wider mining industry.

WisdomTree Copper ETC (COPA)

The oldest of these exposures is the $1.3bn COPA which launched in September 2006 under the ETF Securities brand.

COPA tracks the Bloomberg Copper Subindex Total Return index which offers exposure to the price of copper futures contracts instead of the spot price.

Futures contracts are continuously rolled on a pre-determined schedule in order to avoid taking a physical delivery of copper when the contract expires.

Like with any futures contracts, when a market is in contango – i.e. when the futures curve is more expensive than the spot price – it can lead to additional losses for investors.

However, when a market is in backwardation and the futures contracts are lower than the spot price, investors will see a performance gain when COPA rolls to the next contract.

Global X Copper Miners UCITS ETF (COPX)

Meanwhile, the $59.7m Global X Copper Miners UCITS ETF (COPX) was the first ETF in Europe to offer exposure to a basket of copper mining companies.

Launched in November 2021 with a total expense ratio (TER) of 0.55%, COPX tracks the Solactive Global Copper Miners v2 index currently provides access to 38 stocks involved in the space.

To be included in the index, a company must either generate or be expected to generate at least 30% of its revenues in copper mining or a related activity such as exploration or refining.

The index must hold between 20-40 stocks with each company required to have a market cap of at least $200m and an average daily trading volume of at least $500,000 to enter the index.

The index is market-cap weighted with each individual stock capped at 4.75% while the aggregate weight of stocks listed in Russia must not exceed 15%.

COPX’s top five holdings are currently Lundin Mining, First Quantum, Ivanhoe Mines, Southern Copper and Antofagasta.

iShares Copper Miners UCITS ETF (COPM)

Last on the list is the iShares Copper Miners UCITS ETF (COPM) which launched in June on the Euronext Amsterdam with a fee of 0.55%, ETF Stream revealed.

BlackRock chose to replicate the Stoxx Global Copper Miners index which currently tracks 33 global companies involved in the copper mining industry.

Companies that derive over 50% of their annual revenue from sectors linked to copper mining are included in the index. If there are not enough holdings, the index selects companies with revenue exposure of over 25%.

The index is price-weighted with weighting factors based on free-float market cap while each company is capped at 8%.

The company’s top five holdings are First Quantum, Freeport McMoran, Antofagasta, Grupo Mexico and BHP Group.

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