Posted on 07 April 2012.
Investing in a copper ETF is not just an investment in the widely used industrial and commercial metal commodity. Copper is such a widely used industrial and commercial metal that an investment in a copper ETF is a de facto investment in the world economy. In fact, copper is so closely tied to the performance of the world economy that many economists and stock market advisors follow the price of copper to help them understand the strength or weakness of the world economy.
An Exchange Traded Fund (ETF), such as a copper ETF, is a fund that holds a basket of securities (either stocks, financial securities, or futures contracts) related to the sector that the fund is focused on. The value of a copper ETF can be based upon securities issued by companies that derive the majority of their revenues from the copper mining industry. The value of a copper ETF can be also be based upon commodity futures that track the futures contract prices that market participants are paying to buy copper at any given time.
An example of a copper ETF that derives its value from copper mining industry stocks and financial securities is the Global X Copper Miners ETF (COPX). The COPX is made up of stocks and financial securities that generally correspond to the price and yield performance, before fees and expenses, of the Solactive Global Copper Miners Index. At any give time, at least 80% of the fund’s total assets are invested in securities that are economically tied to the copper mining industry.
An example of a copper ETF that derives its value from copper commodity futures is the iPath Dow Jones UBS Copper Total (JJC). The JJC is made up of copper commodity futures that generally correspond to the price and yield performance, before fees and expenses, of the Dow Jones-UBS Copper Total Return Sub-Index. The fund is designed to reflect the performance on the copper futures contracts traded on the New York Commodities Exchange that comprise its valuation.
Some stock market investors invest in a copper ETF to invest in high growth emerging markets, such as Brazil, Russia, India, and China (BRIC); otherwise known as the BRIC countries. The thinking behind this investment strategy is that buying a copper ETF allows an investor to gain exposure to the high growth BRIC economies since these fast growing economies use a lot of copper as they grow and modernize, and the price of copper should rise in response.
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