Oil is getting most of the attention, but another commodity has been soaring in recent weeks. Copper, the red metal with supposedly predictive powers about the global economy, is on a tear.
Over the past month, the iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC) is up nearly 8.8%. Copper miners, as measured by the Global X Copper Miners ETF (NYSEArca: COPX), have been nearly twice as good. COPX has surged 17.3% over the past 30 days.
Speaking of copper miners, ebullience surrounding the red metal has trickled down to theiShares MSCI Chile Capped ETF (NYSEArca: ECH), the lone ETF dedicated to tracking equities in the world’s largest copper-producing country. ECH is up 2.4% over the past month and with a year-to-date gain of 7.4%, ECH earns the title of best-performing Latin America single-country ETF this year. To its credit, ECH has that title by a wide margin over rivals ranging from the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) to the iShares MSCI All Peru Capped ETF (NYSEArca: EPU). [Copper Crimps Chile ETF]
When looking at ECH, the ETF’s correlation to copper prices is not readily apparent. The ETF’s materials sector weight is just 11.3%, or 650 basis points below the fund’s weight to bank stocks and well below the almost 29% allocated to the utilities sector. In fact, there is just one materials stock found among ECH’s top 10 holdings. However, ECH’s five-year correlation to JJC is 0.6.
The recent weakness in the U.S. dollar also bolstered hard assets, such as copper, which tend to have an inverse relationship with the greenback – a weaker greenback means that it takes more to acquire the same amount of copper.
Moreover, some argue that the recent strength in copper prices is also driving greater forward momentum through short-covering – previous short sellers are calling it quits and buying back into the asset to cover their short positions. [Copper ETFs Rebound]
Investors have started nibbling at ECH. Since the start of April, the ETF has added $44.2 million in new assets. Over the same period, EWZ, the largest Brazil ETF, has bled $97 million. ECH’s inflow tally over that period is second only to the iShares MSCI Mexico Capped ETF (NYSEArca: EWW) for inflows.
iShares MSCI Chile Capped ETF
ETF Trends editorial team contributed to this article.