United States Commodity Funds, the firm behind the $1.2 billion Unites States Oil Fund (USO - News), is cutting the management fee it charges for its U.S. Copper Index Fund (CPER - News) by 31.5 percent, to make the fund more competitive against the iPath Pure Beta Copper ETN (CUPM - News).
In paperwork the company filed with U.S. regulators this week, U.S. Commodity Funds said it would lower CPER’s management fee to 0.65 percent from 0.95 percent, effective May 29. The waiver should be in place at least through March 31, 2013.
The price cut is an attempt to get investors to choose CPER over CUPM as their vehicle of choice for trading in the copper space, U.S. Commodity Funds’ chief investment officer John Hyland said in a telephone interview. CUPM has management fees of 0.75 percent a year.
While both funds at the moment each has less than $3 million in total assets, CUPM is where the trading action is taking place, something that Hyland thinks could be a result of CUPM’s cheaper price tag.
“We offer a better mousetrap for the copper market, but people haven’t jumped in it—they have used the ETN for trading instead,” Hyland said. He argued that what he sees as a “better portfolio” and a better structure—ETF vs. ETN—hasn’t mattered as much to investors as price has.
CPER is currently the only copper ETF on the market, while CUPM is its only competitor, though in an ETN wrapper—meaning it’s a debt instrument subject to its issuer’s good faith and credit. CUPM is issued by Barclays Plc, the U.K.-based bank.
They are both copper-futures-based strategies, and both aim to protect investors from contango, a condition in futures markets that can hurt investment returns over time.
Contango is when the front-end months on the futures curve are cheaper than contracts expiring in later months, making rolling into the next, pricier position before expiration of a given contract a money-losing proposition each time.
Both iShares and J.P. Morgan also have physical copper ETFs in registration with the Securities and Exchange Commission. Both of those funds would be physically backed portfolios, wherein investors would actually own copper that would be kept in vaults.
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