Copper Mining ETFs Head-to-Head - ETF News And Commentary
February 03 2012 - 6:01AM
Zacks
The weak economy in the second half of 2011 wasn’t exactly
welcomed news for those in the copper industry. Prices for the red
metal slumped from just under $4.5/lb. in late July to just over
$3.0/lb. in early Autumn. Yet, thanks to some encouraging data on
the housing front, as well as hopes for a soft landing in China—or
more construction related stimulus in the nation—copper prices have
come storming back in recent months, pushing prices back up close
to the key $4/lb. level to start the year.
While obviously this has been good news for those who are
holding onto copper ETNs such as JJC—prices of this note have
gained close to 21% in the past three months—copper mining equities
have also been huge beneficiaries as well. Most securities in
this space have seen double digit gains as well, spurred by the
prospect of higher profit margins and increased demand for copper
if the economy continues to rebound. Thanks to this, a closer look
at some of the copper mining ETFs could be an intriguing investment
for those seeking to gain exposure to the sector but do not have a
strong opinion on any particular stock in the industry (read Time
To Consider The Silver Miners ETF).
For these investors, there are currently two options available;
the First Trust ISE Global Copper Index Fund (CU) and the Global X
Copper Miners ETF (COPX). Both of these funds could represent a
cost effect way to gain diversified exposure to the broad sector
while limiting the holdings in firms that do a great deal of
business in the other corners of the mining world (also read Is HAP
The Best Commodity Producer ETF?). However, while they may appear
to be similar at first glance, the funds actually have some key
differences that investors should be aware of before making their
decision. Below, we highlight COPX and CU in greater detail and
discuss some of the key similarities and distinctions between the
two.
ISE Global Copper Index Fund (CU)
CU tracks the ISE Global Copper Index which is designed to give
investors access to firms that are active in the copper mining
industry be it in refining, exploration, or mining. Interestingly,
the fund doesn’t use a pure market cap weighted system to assign
values to component securities. Instead, the product uses a
modified linear weighted methodology adjusted by revenue exposure
to copper production, where component securities are grouped into
linearly weighted quartiles and then equally weighted within each
quartile. The resulting distribution allows smaller, more copper
focused companies to be adequately represented in the index. This
also produces a fund that charges 70 basis points a year in fees
and one that has 26 stocks in its basket (read Time To Buy The Rare
Earth Metals ETF?).
In terms of holdings, only three countries make up more than 11%
of assets with Canada (42.8%) the UK (20.8%) combining to make up
more than three-fifths of assets and American firms taking up
another tenth. For individual securities, First Quantum Minerals
(FM) takes the top spot, but it closely trailed by Rio Tinto (RIO)
and Southern Copper (SCCO). Investors should also note that every
security in the top ten receives at least 4.3% of total assets
suggesting a pretty good breakdown among securities. Performance
figures have been more encouraging as of late as CU has gained
15.4% in the past months alone. This combined with the
product’s solid dividend payout, the low P/E below 9, and the
improving sentiment in the industry, could make the fund a star
performer later this year.
Global X Copper Miners ETF (COPX)
COPX follows a similar benchmark as its First Trust counterpart,
tracking the Solactive Global Copper Miners Index. This benchmark
looks to select companies globally that are actively engaged in
some aspect of the copper mining industry, be it in mining,
refining, or exploration. This gives the fund roughly 32 stocks in
total while charging investors 65 basis points a year in fees (see
Top Three Precious Metal Mining ETFs).
Top individual holdings contain three Canadian-based firms
including; Quadra FNX Mining, Lundin Mining (LUNMF), and First
Quantum Minerals, all of which make up at least 5.5% of total
assets. Given this focus on Canada in the top spots, it shouldn’t
come as much of a surprise that Canada makes up nearly half of
total assets, while this is followed by a nearly 20% weighting to
the UK, and a 10.5% allocation to the USA. In terms of capital
appreciation, COPX has outperformed CU over the past one month
period gaining about 16.7% in that time. However, the fund has also
led CU lower on the downside, suggesting that greater volatility
could be inherent in this product from Global X. With that being
said, this product also has a P/E below 9 and a dividend above
2.25% so there is some value in the underlying securities in this
fund too.
Category
|
CU
|
COPX
|
Volume
|
161,800
|
119,000
|
AUM
|
$58.4 million
|
$39.9 million
|
Assets in top ten holdings
|
56%
|
52.9%
|
Expenses
|
.70%
|
.65%
|
Performance (1mo/TTM)
|
+15.4%/-19.6%
|
+16.7%/-22.6%
|
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LUNDIN MINING (LUNMF): Free Stock Analysis Report
RIO TINTO-ADR (RIO): Free Stock Analysis Report
SOUTHERN COPPER (SCCO): Free Stock Analysis Report
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