Copper prices are surging, and Citigroup (NYSE:C) analysts say we are entering a new copper bull market. The Global X Copper Miners ETF (NYSEARCA:COPX) is an effective way to invest in this promising space as it gains momentum.
I’m bullish on this $2.1 billion ETF from Global X based on the favorable setup for copper in the short term and longer term. Furthermore, I like that the ETF provides investors with exposure to a diversified group of copper miners and yields 1.9%.
What’s Going on with Copper?
Copper prices recently hit a 15-month high, prompting analysts from Citi to say that we are in copper’s second bull market this century, driven by “booming” demand stemming from decarbonization efforts. Citi pointed to the copper bull market of the 2000s, where surging demand from China led to prices increasing fivefold in just a three-year period, and says we could again see “explosive price upside” over the next three years.
Citi isn’t alone in this view, as analysts from Bank of America (NYSE:BAC) also believe that increasing demand combined with a lack of new copper mines coming online will drive prices higher this year.
In the short term, mine disruptions have led Chinese smelters to cut copper production, at a time when manufacturing activity in both the U.S. and China (the world’s largest consumer of copper) is picking back up, driving prices higher.
In the longer term, the growth in artificial intelligence could lead to more copper demand for use in data centers. Commodity trading outfit Trafigura believes that demand stemming from artificial intelligence and data centers could add over one million metric tons of demand for copper by 2030, which is on top of what the firm sees as a supply deficit of four to five million metric tons that will exist by 2030.
In addition to data centers, further demand could be driven by technologies like electric vehicles and renewable energy storage as they grow in popularity.
Furthermore, COPX’s sponsor, Global X, commented on the long-term bull case for copper, explaining, “Forecasts suggest copper consumption will reach 43mm metric tons by 2050, up from 26mm in 2022. However, supply may not keep up with rising demand, and such an imbalance could support copper prices and present opportunities for miners.”
Given these short- and long-term catalysts, there are plenty of good reasons for investors to gain exposure to copper, which is where the COPX ETF comes in. Let’s delve into COPX’s strategy below.
What Is the COPX ETF’s Strategy?
According to fund sponsor Global X, COPX “seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Copper Miners Total Return Index.”
As Global X explains, “In a single trade, COPX delivers efficient access to a basket of companies involved in the mining of copper.”
What appeals to me about COPX’s approach to investing in copper miners is the leverage these companies have against rising copper prices. Therefore, investing in these companies could offer additional upside to simply investing in copper itself.
Furthermore, investing in COPX offers a diversified portfolio of copper miners. This provides a convenient option for generalist investors who may not be deeply familiar with the nuances distinguishing various copper mining stocks, allowing them to gain exposure to the entire sector. We’ll explore this diversified basket of holdings in more detail below.
COPX’s Basket of Copper Mining Stocks
COPX holds 37 stocks, and its top 10 holdings make up just over half of its assets, so the fund provides fairly diversified exposure to copper miners without giving investors too much exposure to just a few stocks.
Below, you’ll find an overview of COPX’s top 10 holdings from TipRanks’ holdings tool.
As you can see, Canada’s Lundin Mining (TSE:LUN) is the top holding here, with a weighting of 6.3%, followed closely by Chile’s Antofagasta Plc (OTC:ANFGF), with a weighting of 6.1%.
While there aren’t many household names here, U.S. investors may be familiar with Freeport-McMoran (NYSE:FCX) and Southern Copper (NYSE:SCCO).
I like the fact that COPX invests in this broad basket of copper mining stocks because this diversified exposure protects investors from company-specific risks that can arise when investing in an individual mining company, such as operational problems at a mine or political and environmental risks that can arise.
Copper mining is a worldwide industry, and COPX also gives investors decent geographic diversification. Canada takes top spot within the fund with a 36.1% weighting, followed by the United States, with a weighting of 10.8%. No other country accounts for a double-digit weighting, and other countries represented include China, Australia, Japan, Great Britain, Poland, Sweden, and others.
Does COPX Pay a Dividend?
COPX further boosts its appeal to investors by paying a dividend. While its 1.9% dividend yield isn’t necessarily turning heads, it’s still a decent dividend that trumps the average dividend yield for the S&P 500 (SPX), which is currently just 1.4%.
How Much Does COPX Charge Investors?
One downside of COPX is that it is fairly expensive. Its 0.65% expense ratio is above the 0.57% that is currently the average expense ratio for all ETFs. This 0.65% expense ratio means that an investor putting $10,000 into COPX will pay $65 in fees on an annual basis.
Is COPX Stock a Buy, According to Analysts?
Turning to Wall Street, COPX earns a Moderate Buy consensus rating based on 21 Buys, 15 Holds, and two Sell ratings assigned in the past three months. The average COPX stock price target of $47.17 implies 1.8% upside potential.
Conclusion: Copper Looks Promising in the Short and Long Term
I’m not worried about the lackluster average analyst price target. Given that copper prices have surged quickly and emphatically, it appears to have taken the Street by surprise. Many analysts likely haven’t adjusted their targets for these copper miners yet.
Looking ahead, copper looks attractive both in the short term and long term based on the potential for increased demand and supply limits. Therefore, I’m bullish on COPX, which is an effective way to gain exposure to this trend, thanks to the fact that it provides diversified exposure to copper miners.
