As an industrial metal, copper lacks the glitz and glamour of gold and platinum. However, the red metal is a cornerstone among economic indicators, meaning it’s exceedingly relevant to investors on a variety of levels — even if their portfolios lack direct exposure to “Dr. Copper.”
Judging the performance of copper futures this year, now may be an ideal time for investors to consider allocations to the industrial metal. Importantly, that thesis is supported by compelling fundamentals, including robust demand from China and the booming renewable energy industry.
“Demand is only one side of the story, though, as production disruptions in key South and Central American regions add to concerns that the copper market may be heading into a deficit. In this piece, we discuss these factors and more, including how investors may want to consider exposure to copper,” noted Global X analyst Rohan Reddy.
Compelling commentary to be sure, but copper futures aren’t suitable for all investors. Equities offer appeal to a broader swath of market participants, and the Global X Copper Miners ETF (COPX) answers that bell. Up nearly 14% year-to-date, the Global X exchange traded fund is far outpacing the returns of exchange traded products based on copper derivatives contracts.
The $1.94 billion COPX follows the Solactive Global Copper Miners Total Return Index and holds 39 stocks. With just 11% of the ETF’s roster allocated to domestic equities, COPX offers ample leverage to the copper export story, putting investors in position to potentially benefit from soaring demand in China.
“More broadly, China reported that its manufacturing sector is recovering rapidly. According to February Purchasing Managers’ Index (PMI) data, China’s manufacturing sector expanded at its quickest rate since April 2012, potentially paving the way for higher output and increased economic activity,” added Reddy.
Beyond China, renewable energy is a vital driver of future copper demand. For example, electric vehicles are copper-intensive relative to internal combustion engine rivals. Other green energy products also need copper to deliver electricity, indicating that there’s a potentially ample runway for COPX member firms to participate in the renewable energy boom.
“Copper is one of the minerals that will be indispensable to the energy transition. Its conductive qualities make copper a key component of low-emissions power production technologies like solar photovoltaic (PV) panels, wind turbines, and batteries, in addition to its widespread use in the energy transmission and distribution grids,” concluded Reddy.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.