A commodity that has been absolutely punished in the past month or so as equity markets had swooned in the month of May is Copper.
Our colleagues at U.S. Commodity Funds, the ETF issuer behind U.S. Copper Fund (NYSEArca: CPER), inform us that the fund recently slashed its management fee to 65 bps, making it the low cost option in the space.
The metal has declined by nearly 30% in the past one month period alone, so we would not be surprised to see holders of other Copper related ETPs use this opportunity to harvest unrealized losses for taxes, and swap into CPER.
Currently, the giant in the physical copper space in terms of assets is JJC (iPath DJ-UBS Copper Total Return Subindex ETN) with about $120 million in assets, while CPER, having launched in November of last year, only has attracted about $2.5 million. [Copper ETFs Slump on China Slowdown Fears]
It is worth noting that CPER is an ETF, while JJC is an ETN, and the underlying index methodologies of the two products do differ.
CPER tracks the SummerHaven Copper Index Total Return, which was designed to mitigate the effects of contango in the Copper futures markets, which can potentially erode returns over time.
Like a number of other innovative commodity driven ETFs that have been developed in the past several years, such as USL (U.S Natural Gas) for instance, CPER utilizes an optimized portfolio of underlying copper futures as opposed to
owning a single month future such as JJC, and rolling the contracts on a uniform and predictable schedule regularly.
A few tidbits that we found interested that were supplied to us by the issuer of CPER, is that since 1970, copper has a negative correlation to the U.S. Dollar (which likely at least partially explains the recent weakness) and has a strong positive correlation to Industrial Production.
Additionally, strong performance from copper is typically seen in periods of Economic Expansion, and thus since this environment is generally “good” for the equity markets as well, some observers will note that equities and copper move together to some degree.
Since the inception of JJC back in 2007, it is down 16.23% with the S&P 500 Index down 14% during this same time frame.
Of course, there is limited trading history available here for JJC, and even less for CPER being a newer fund, however conceptually it would make sense to most that as the global economy is prospering and countries and institutions (private or public) are investing in infrastructure, Copper prices should participate on the upside.
U.S. Copper Fund