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3 Industrial Metal ETFs to Buy Amid Weak Global Trends

Sweta Killa

Industrial metals, in particular nickel, aluminum and zinc, have been showing strength and are gaining enough investor interest despite the recent broad commodity sluggishness and strengthening dollar (read: Inside U.S. Dollar ETFs: Will the Run Continue?).  

The positive sentiment was mainly driven by increasing industrial demand and limited supplies from existing mines and absence of new development projects. Since industrial metals are used in a number of applications in construction and manufacturing businesses, rising global population, urbanization of other Asian countries and increasing need from developed countries will continue to create unprecedented demand for industrial metals.

While concerns over the slowing demand in China – the major driver of industrial metals – is looming large, signs of economic recovery would push metals higher. This is especially true given that Chinese trade surplus widened to a record high in August as exports rose on strong U.S. and international demand. Further, global economic conditions seem to be improving with easing tensions in Ukraine as well as another round of stimulus by ECB propping up growth and inflation in Europe.

To sum up, the base metal prices will continue to push higher on the back of revival of the Chinese economy, much stronger U.S. economy, improving global fundamentals and favorable supply and demand trends (read: Industrial Metals Recovery puts these ETFs in Focus).

Given the bright outlook, investors may want to consider cycling into the industrial metal space in order to obtain a nice momentum play for the rest of the year. For those investors, we have highlighted some top-ranked industrial metal ETFs that could be a less risky way of tapping the current broad trends.

Top Ranked Industrial Metal ETF in Focus

We have found a number of ETFs or ETNs that have the Zacks ETF Rank of 2 or ‘Buy’ rating in the industrial metal space and are thus expected to outperform in the months to come (read: all the Top Ranked ETFs).

While all these top ranked products are likely to outperform, the following three funds could be good choices to tap into the space. This trio has enjoyed a strong momentum in the year to date time frame, and has potentially superior weighting methodologies which could allow it to continue leading the industrial metal space in the months ahead.

iPath Pure Beta Nickel ETN (NINI)

This note seeks to match the performance of the Barclays Capital Nickel Pure Beta Total Return Index. Unlike many commodity indexes, this product can roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology.

This approach might result in less contango, which could prove crucial, as shifting from month to month in contracts can eat away returns during an unfavorable market situation. The ETN manages just $4.8 million in its asset base and sees light volume of about 3,000 shares a day, suggesting additional cost beyond the annual fee of 75 bps per year. The note has surged about 33% in the year-to-date time frame.

iPath Dow Jones-UBS Aluminum Subindex Total Return ETN (JJU)

This ETN tracks the Dow Jones-UBS Aluminum Subindex Total Return. The index delivers returns through an unleveraged investment in the futures contracts on aluminum and currently consists of one futures contract on the commodity (read: Is It Time to Buy Top-Ranked Aluminum ETFs?).

The product trades in a paltry volume of about 5,000 shares on average daily basis and has amassed $4.5 million in AUM. Expense ratio came in at 0.75%. The ETN is up nearly 11.8% year to date.

PowerShares DB Base Metals Fund (DBB)

This product provides diversified exposure to the three most liquid and widely used base metals by tracking the DBIQ Optimum Yield Industrial Metals Index Excess Return. Currently, the fund allocates 36% to copper, 33% to aluminum and 31% to zinc (see: all Industrial Metal ETFs here).  

DBB is the most popular and actively traded fund in the industrial metal space with AUM of $341.4 million and average daily volume of 239,000 shares. It charges 78 bps in annual fees and expenses and has added just 4% so far this year.

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Read the analyst report on NINI

Read the analyst report on JJU

Read the analyst report on DBB


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