New Copper ETF (CPER) Launches

Copper TubingToday it was announced that United States Commodity Funds LLC, which also lists the United States Oil Fund (USO), has listed a new copper ETF (CPER) on the NYSE.  The ETF fund seeks to reflect the performance of a portfolio of copper futures contracts fully collateralized with 3 month US Treasury Bills to reflect the daily percentage change of the SummerHaven Copper Index.  It attempts to maximize backwardation and minimize contango while using contracts in the liquid portions of the futures curve.  Contango can hurt investor returns over time and occurs when the price of a forward or futures contract is trading above the expected spot price at contract maturity.

Here’s how the fund plans to deal with the issue if the market is in contango:

They will take positions in three copper contracts..

* The two eligible contracts with the higher annualized percentage price differences, with each contract weighted at 25 percent of the portfolio

* Another position in the nearest-to-maturity December eligible contract that has an expiration date more distant than the fourth-nearest eligible contract. That third contract would make up 50 percent of the portfolio, according to the fund’s prospectus.

Technically, copper remains in a downtrend after a torrid run in 2009/2010.  High volume selling days have overshadowed buy volume for some time and resistance areas remain in place.  In my opinion, investments in copper should be avoided for now. 

Another way to play copper you might consider is through the iPath Copper ETN (JJN), although it’s not all that liquid.  I wouldn’t expect the CPER ETF to offer much liquidity either.    Currently, the best play in copper probably remains with the world’s largest copper producer Freeport Mcmoran (FCX).

Leave a Reply

Your email address will not be published. Required fields are marked *