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Make The Copper Call With This ETF

ETF Professor

Among the many asset classes racing higher following Election Day are industrial metals. The added good news is that copper is bolstering that theme. The iPath Bloomberg Copper Subindex Total Return Sub-Index (NYSE: JJC) is up 25.1 percent over the past month, and some of that ebullience is trickling down to copper miners.

Copper, Copper Miners On A Rip

For example, the Global X Copper Miners ETF (NYSE: COPX) is higher by 22.1 percent over the same period, bringing its year-to-date to over 89 percent. In other words, though it may not be getting the credit it deserves, COPX is one of this year's best-performing non-leveraged ETFs.

Expected infrastructure largess is one reason why copper and COPX are soaring.

“That the US’s infrastructure is in dire need of repair and fixing it is perhaps the most prominent policy issue that both Clinton and Trump agreed upon,” said Global X in a recent note. “Many believe that repaving roads, expanding highways, improving railways and ports, and building out digital superhighways should make conducting business easier and faster and, in turn, stimulate the country’s GDP growth. Since the election, the markets have rewarded investments that are expected to benefit from Trump’s proposal to spend $1 trillion on rebuilding and expanding the US’s aging infrastructure.”

Importantly, copper and COPX are rising even as markets price in an interest rate hike from the Federal Reserve later this month.

Commodities And Materials

Commodities are seen as sensitive to U.S. interest rates, but the materials sector is not as inversely correlated to rates as, say, telecom or utilities. As a cyclical sector, materials can actually perform well if the Federal Reserve raises interest rates because that would be a sign the Fed is confident the economy is strong enough to endure higher borrowing costs.

COPX is 6.5 years old and follows the Solactive Global Copper Miners Total Return Index. At the geographic level, the ETF is dominated by Canadian stocks, which account for over 46 percent of the ETF's lineup. That is almost five times the weight the ETF devotes to Australian stocks, its second-largest geographic exposure.

“While the markets await more specific plans on what an infrastructure plan will look like — specifically, how much money and how it will be spent — copper remains one material that stands to potentially benefit from greater infrastructure investment, however those policies ultimately materialize,” noted Global X.

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