As 2012 drew to a close, the SEC finally approved J.P.
Morgans JPM XF Physical Copper Trust, the first
exchange-traded product for physical copper in the U.S. At the
same time, the SEC delayed its decision on a very similar
Copper Trust from BlackRocks iShares until February
Its been a very long process, starting in October
2010, when both JPM and BlackRock filed their original
applications with the SEC. Back then, copper was in the first
year of what became a three-year-long deficit, with demand
exceeding supply, but now the market may be swinging into a
That leads to the question: While JPM and BlackRock were
battling it out with a very dedicated group of opponents
a group of copper fabricators who fear the investment products
will engage in hoarding intending to drive prices artificially
higher did they miss the right moment for a launch?
And with plenty of futures-based copper ETFs on the market,
will investors be willing to take on the additional costs of
storing and insuring physical copper, which is big and bulky
unlike gold, silver, platinum and palladium?
There is currently only one physical copper exchange-traded
product in the world, offered by ETF Securities of London.
Launched in December 2010, the firms physical copper
product (PHCU.LN) has barely gotten off the ground, with just
$16.2 million in assets as of January 15, according to
Bloomberg. By comparison, their futures-based copper product
(COPA.LN), launched in September 2006, had a healthy $507.9
million in assets on the same date.
When it comes to comparing the two ETFs on returns, the
picture is mixed and depends on many market variables, but
right now things seem to favor the futures-based copper ETF.
COPA, for example, had the better one-year return with -2.15
percent versus -2.91 percent on PHCU as of January 15,
according to Bloomberg. And the physical product has also been
handicapped by its high costs, including 41 cents per ton per
day to store the metal, an expense ratio of 69 basis points and
another 12 basis points for insurance. That brings the total
cost to an investor to about 2.5 percent, says Ben Johnson, the
director of passive-fund research at Morningstar in Chicago. By
comparison, investors in the futures-based product pay just an
expense ratio of 49 basis points, he notes.