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Do Copper ETFs Make the Right Bet for 2020?

Sweta Jaiswal, FRM

Majority of the top industry analysts expect copper to perform well in 2020 on growing demand as the global economy recovers. According to Jefferies analyst Christopher LaFemina, high short positions, improving global demand, supply shortages coupled with low copper inventories are setting the ideal conditions for the metal to perform well in 2020 (per a Bloomberg article). In fact, this upbeat view for the metal has been supported by other analysts from leading firms like Goldman Sach’s, Morgan Stanley, Bank of America and Citi.

Analysts are of the opinion that the current supply levels of copper will be highly insufficient to meet the slightest rise in demand levels. Analysts at Goldman believe that soft investment levels in China due to weak performances in the grid, property and transportation sectors have been affecting demand for copper in 2019. Owing to government infrastructure stimulus, the investment on grids and property is likely to improve, thereby creating demand for copper in the first quarter of 2020.

Analysts at Citi are of the opinion that strength in the emerging markets will help in driving demand for copper in 2020. Also, emerging markets have been gaining investors’ confidence on their high growth potential and rapid pace of industrialization. Per IMF projections, growth in advanced economies will slow to 1.7% in 2019 and 2020, while emerging market and developing economies will experience growth of 3.9% in 2019 and 4.6% in 2020 (read: Is it the Right Time to Buy Emerging Market ETFs for 2020?).

Meanwhile, analysts at Bank of America are of the opinion that improvement in global economy, Fed’s easy monetary policy and a partial trade accord between the United States and China will drive demand for copper in 2020.

Copper ETFs in Focus

Given the strong forecasts, investors can take a look at the following copper ETFs:

iPath Series B Bloomberg Copper Subindex Total Return ETN JJN

The ETN provides exposure to the Bloomberg Copper Subindex Total Return. The index reflects the returns that are potentially available 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), which is included in the Bloomberg Commodity Index Total Return. The fund has an AUM of $13.7 million and charges a fee of 45 basis points. It has gained 8.1% year to date (read: Risk-On Sentiments Are Back: ETFs to Play).

United States Copper Index Fund CPER

The fund seeks to track the performance of the SummerHaven Copper Index Total Return, plus interest income from CPER’s holdings, less fund expenses. CPER is designed to be a convenient, cost-effective way for investors to access the returns of a portfolio of copper futures contracts and is listed on the NYSE Arca. The fund has an AUM of $8.7 million and charges a fee of 80 basis points. It has gained 8.1% in the year-to-date period.

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iPath Series B Bloomberg Nickel Subindex Total Return ETN (JJN): ETF Research Reports
 
United States Copper Index Fund (CPER): ETF Research Reports
 
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