Make Money in Copper's Bright Future the Easy Way

Updated

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the copper industry to boom as the housing market eventually recovers and global infrastructure projects grow, the Global X Copper Miners ETF (NYS: COPX) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The copper ETF's expense ratio -- its annual fee -- is 0.65%. That's a bit higher than many ETFs, but also considerably lower than most stock mutual funds. The ETF is relatively small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF doesn't have much of a performance to assess since it's very young. It underperformed the market significantly last year and is well ahead of it so far this year. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 16%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Few copper-mining companies had strong performances over the past year, due to falling prices, some labor problems, and uncertainty over China's expected growth rate. But many still have bright futures.

Freeport McMoRan Copper & Gold (NYS: FCX) shed 19% over the past year, but is well positioned for future growth, with copper mines well distributed over several continents. It's diversified by product, too, producing gold and molybdenum in addition to copper. It's also among the least leveraged copper miners, with a net cash position and a relatively low debt-to-equity ratio. Southern Copper (NAS: SCCO) , for example, down 20% over the past year, sports a much higher debt ratio. Both also offer dividends for investors waiting for copper demand to surge.

Ivanhoe Miners (NYS: IVN) , meanwhile, shrank by 39% over the past year, but is planning for future growth by boosting production and mine development. It's in a joint venture with Rio Tinto in Mongolia, and some speculate that it might be a takeover target due to its low debt levels.

The big picture
Demand for copper isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier. Give the Global X Copper Miners ETF some consideration -- and perhaps look at its peers, as well, such as the well-regardedFirst Trust ISE Global Copper Index Fund (NYS: CU) .

Learn aboutthe 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these12 Dividend Stocks for 2012.

At the time thisarticle was published LongtimeFool contributorSelena Maranjian, whom you can followon Twitter@SelenaMaranjian,holds no position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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