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What Is a Copper ETF?

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  • Written By: Justin Riche
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 30 August 2016
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Essentially, an exchange traded fund (ETF) is a financial instrument that tracks a given index and is traded just like a normal stock on a stock exchange. A copper ETF then tracks certain indices that are tied to the copper industry. For instance, one may find an index that replicates the performance of the copper mining industry. In turn, a copper ETF for this sector would track the performance of this particular index, and in so doing it would furnish results that are similar to the sector's. That is, if the copper mining industry is doing good, for example, then the copper ETF would provide good investment results, with the reverse being true if the industry was doing poorly.

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Basically, a copper ETF is set up and managed by finance professionals who raise capital by selling shares to the public. This capital is in turn used to buy stocks from the companies that are tracked by the index in a proportional manner according to their weight. To illustrate, consider an index tracking three companies in the copper mining industry with the following names ABC, COPP and XYZ. Suppose, ABC has 50% weight in the index, COPP's weight is 35%, and XYZ has 15% in weight. Therefore, to create the copper ETF tracking the index, each $100 US Dollar (USD) in capital will be used to buy stocks from the said companies according their index weight — $50 USD will be allotted to stocks from ABC, $35 USD to COPP, and finally $15 USD to XYZ.

In the example above, an investor can take advantage of the performance of the three companies through one single share of the ETF. Moreover, copper ETFs are dedicated to the copper market, so they are created to take advantage of this market in many ways, on a global scale. For example, some ETFs are designed to track and reflect the copper price. Also, there are copper-backed ETFs that, as the name suggests, are backed by physical copper. The capital raised for these copper-backed ETFs is typically used to buy the metal and store it in vaults and/or actively trade it.

Furthermore, ETFs in general are easily accessible to any investor no matter the size of his or her financial resources. For this particular reason, they have become very popular to the average investor as he or she can gain access to this market without too much hassle. Particularly, a copper ETF, such as the one backed by the physical metal, is ideal for those investors who like to invest in copper but do not wish to deal with the physical storing of the metal since it can be burdensome.

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