United States Commodity Funds LLC teamed up with SummerHaven Index Management to bring out a copper futures fund that attempts to optimize the performance impacts caused by contango and backwardation. The United States Copper Index Fund (CPER) launched on November 15, 2011 with an objective to track the daily total return performance of the SummerHaven Copper Index (“SCI”), less expenses.
CPER marks the second time these two firms have worked together to provide next-generation commodity funds. The previous time was to introduce the United States Commodity Index Fund (USCI) back in August of 2010.
The SummerHaven Copper Index Methodology (pdf) employs a rules based system for selecting the COMEX traded copper futures contracts to hold:
- If the copper futures curve is in backwardation, it will select the two copper contracts from the first four with the greatest backwardation (or least contango), each weighted at 50%.
- If the copper futures curve is in contango, then the SCI takes positions in three contracts as follows: From the first four eligible contracts, it selects the two with the greatest backwardation (or least contango), each weighted at 25%. It also takes a 50% position in the December contract that expires following the previously examined four contracts.
The new ETF has an investor fee of 0.95%, and since it holds futures contracts, it will issue a K-1 at year-end instead of the more desirable 1099.
CPER will compete against iPath Pure Beta Copper ETN (CUPM) and iPath DJ-UBS Copper Subindex Total Return ETN (JJC). Both have the advantage of a lower 0.75% investor fee and no K-1s. Additionally, JJC has been on the market for more than four years and has attracted more than $125 million in assets. However, both have the disadvantage of being exchange-traded notes, which is a less attractive package than CPER’s fund structure.
Additional information is located in the summary, details, fact sheet (pdf), and prospectus (pdf).
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.