Exchange Traded Fund (ETF) Trading Strategies

Monday, January 24, 2011

JP Morgan's First-Ever Copper ETF



J.P Morgan, which filed for the first-ever physical copper exchange-traded fund in October, submitted its second amended set of registration documents for the proposed fund with the Securities and Exchange Commission earlier this week.

The company hasn't yet revealed a ticker or an expense ratio for its proposed copper fund. However, some of the new language in the amended documents provides a glimpse into the unique administrative aspects of running a fund backed by a physical commodity.

J.P. Morgan's fund is designed to give investors exposure to the spot price of copper, a material in increasing demand as emerging economies such as China and India develop their infrastructure. Many investors view copper, which is used in electricity transmission grids and telecommunications infrastructure, as a bellwether for the global commodity.

Currently, investors looking for copper exposure only have miner's funds, such as the Global X Copper Miner's ETF (NYSEArca: COPX) or First Trust's ISE Global Copper Index Fund (NasdaqGM: CU). The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC) tracks copper futures.

JJC’s price has risen more than 30 percent in the past year. The ETN had $257.1 million in assets as of Jan. 27, according to data compiled by IndexUniverse.com.

Warehousing Details

The fund's net asset value, for instance, will be computed daily using the official settlement price per metric ton of Grade A Copper on the London Metals Exchange, plus a weighted average "locational premium" for the fund's copper held in its various warehouse locations.

The trust is permitted to hold copper in warehouses in the Netherlands, Singapore, South Korea and the United States. In its latest paperwork, J.P. Morgan removed references to warehouses in Germany, Belgium, Italy, Spain, and the United Arab Emirates.

To create shares, which must be in blocks of 2,500, authorized participants must take delivery of at least 25 metric tons of copper to the fund's authorized warehouse-keeper.

full list of commodity ETFs here

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