Top Canadian Copper ETFs

Copper is a commodity that has been critical to our increasingly sustainable and clean-energy conscious global economy. For example, McKinsey predicts that the demand for electrification is projected to increase annual copper demand to over 36 million metric tonnes by 2031.¹

Similarly, S&P Global predicts that demand for copper will “double by 2035” thanks to a growing appetite amid the energy transition from fossil fuels to clean, net-zero electricity generation. S&P Global calls copper “the metal of electrification,” given that it is an essential component for electric vehicles, charging infrastructure, solar photovoltaics, and batteries². 

With demand for copper projected to steadily grow, investors could partake in this thematic investment via a copper exchange-traded fund (ETF). Here’s all you need to know before investing in a copper ETF. 

What is a copper ETF?

A copper ETF holds an underlying basket of copper assets, which is divided into a number of shares that trade on an exchange. Investors can buy and sell these shares throughout the day, and the price of the shares will reflect the movements of the underlying asset.

Like all ETFs, copper ETFs charge fees to their investors. These fees encompass the fund manager’s management fees and any operational, administrative, and marketing expenses incurred throughout the year. These are consolidated to form the ETF’s management expense ratio (MER).

The MER is calculated as a percentage fee subtracted from your total investment annually. For instance, an individual who invests $10,000 in a copper ETF with a 0.75% MER can anticipate paying $75 in yearly fees. Fees compound over long periods of time, so it’s always a good idea to keep this as low as possible.

2 types of copper ETFs

Copper ETFs can gain exposure to copper prices in one of two ways, but the basic premise remains similar between both. 

1. The first type of copper ETF is the copper miner ETF. These ETFs do not hold the metal directly. Rather, they hold a portfolio of mining stocks that derive a significant portion or all of their revenues from copper exploration, development, or mining. 
2. The second type of copper ETF is the copper futures ETF. These ETFs also do not hold the metal directly. Rather, they use derivatives called futures contracts, which are agreements to buy and sell copper at a predetermined price in the future, hence the name. 

Both of these ETFs will be correlated to the spot copper price but may not track it exactly. Therefore, it’s important to know that for now, the two types of copper ETFs are a useful proxy for copper exposure, but will not provide precise tracking of copper prices. 

Top copper ETFs in Canada

The following ETFs provide exposure to copper, either via copper miner stocks or exposure using copper futures contracts. Because the Canadian ETF market is smaller, some of the picks here are U.S.-listed ETFs. To buy these ETFs, Canadian investors will need to convert U.S. dollars. 

Horizons Copper Producers Index ETF

As of March 29, 2023, COPP is the only Canadian listed pure-play copper ETF. It provides exposure to a concentrated portfolio of U.S. and Canadian copper miner stocks by tracking the Solactive North American Listed Copper Producers Index. The ETF has not been out for a full year yet, so it does not have a MER. 

Global X Copper Miners ETF

Investors looking for copper miner stocks outside of North America can use COPX as an alternative to COPP. This ETF has been around since 2011, making it one of the more longstanding ETFs in this theme. Currently, COPX tracks the Solactive Global Copper Miners Total Return Index, which holds a total of 39 stocks. Because this is a U.S.-listed ETF, investors will need to buy it with U.S. dollars. 

United States Copper Index Fund

Investors who want exposure to copper prices without the influence of copper miner stocks can use CPER for a derivatives-oriented play. This ETF tracks the SummerHaven Copper Index Total Return, which is composed of copper futures contracts traded on the COMEX exchange. Due to the use of futures, this ETF charges a higher expense ratio and can be quite volatile. 

Pros of investing in copper ETFs

Copper ETFs may be suitable for investors looking for:

1. Growth: If conditions line up for copper demand and usage, copper miner stocks and copper futures can outperform.  
2. Inflation protection: Like most commodities, copper can offer some protection from rising prices. 
3. Liquidity: Copper ETFs are much easier to buy and sell than physical bullion.

Cons of investing in copper ETFs

On the other hand, there are quite a few reasons why investors may choose to avoid copper ETFs:

1. Volatility: The price of copper can fluctuate dramatically. For instance, copper prices fell to a four-year low of $1.98/lb in March 2020 as a result of reductions in global manufacturing and economic demand during the COVID-19 pandemic.³
2. Concentration risk: Copper ETFs that hold copper miner stocks are subject to the risks faced by the materials sector and mining sector.
3. High costs: Compared to regular equity and bond index ETFs, copper ETFs tend to charge much higher MERs. 

Are copper ETFs right for you?

Copper ETFs are most appropriate for sophisticated investors with a high tolerance for risk and specific objectives in mind. If you’re open to embracing considerable fluctuations, copper ETFs can offer an opportunity to speculate on copper prices in a liquid and convenient manner. For those seeking a tax-efficient and liquid method to maintain a long-term position in copper, copper ETFs may serve as a viable alternative to physical bullion. 

It is essential to note that copper ETFs typically come with higher management expense ratios (MERs) compared to standard stock and bond index ETFs. Moreover, copper ETFs holding futures contracts can diverge significantly from the spot price of copper at times, while copper miner ETFs can be subject to stock market volatility as they are still equities.