Metal ETFs To Mine For

August 26, 2011

If you read my last blog, you know I’m not conceding a double-dip recession, and I wanted to add metals to my list of sectors worth looking at.

Corrections are common during economic recoveries and, assuming things don’t get worse in Europe, there are plenty reasons to expect a pickup in business activity.

As I said, industrial stocks, aren’t the only place to profit from a recovery. Metal and mining stocks are just as prospective in my view.

Industrial metal prices are highly correlated to the strength of the economy. Metals such as copper, aluminum, nickel, lead, and tin react quickly to economic recoveries. A pickup in business activity leads companies to try to fill in inventory gaps by increasing manufacturing.

The copper market seems to be feeling better about the prospects of avoiding a double-dip recession.  Copper futures, which closed at $388.55 on Aug. 10, closed at $407.90 on Thursday – up almost 5 percent.

The demand for base metals helps mining stocks by both increasing the amount sold and the price they sell the metal.  Furthermore, as Paul pointed out in his recent blog “Why GLD And GDX Are Completely Unrelated” mining stocks can act as a leveraged play. That’s because costs are pretty much fixed as commodity prices rise, meaning  profit margins increase.

So, what are the best mining stocks to invest in? If you’re looking for industrial metals, plenty of ETFs are on the market to choose from – some very broad in scope and others concentrating on a specific metal.  However, only a few have attracted significant assets under management.

The largest fund investing in industrial metals is the SPDR S&P Metals and Mining Fund (NYSEArca: XME) with $744 million in assets.  The fund isn’t a pure play for industrial metals because gold stocks make up 14.76 percent of the portfolio, according to the issuer’s website.

Precious metals likely make up even more than that, as the fund also boasts 22.79 percent in diversified metal companies. Precious metals behave differently than industrial metals, and will probably lose value in a rising market once fear subsides.  While that’s an argument for avoiding funds like XME, the annual expense ratio is the lowest, at 0.35 percent.

The Jefferies TR/J CRB Global Industrials Fund (NYSEArca: CRBI) is a pure play investing in only industrial metals. But the fund has just $3.6 million in assets. Investors may want to look to a specific metal if they want to avoid precious metal exposure.

Investors interested in copper can choose between the Global X Copper Miners ETF (NYSEArca: COPX) and the First Trust ISE Global Copper (NYSEArca: CU). COPX has a lower expense ratio at 0.65 percent and invests in 34 global copper mining companies.  CU, on the other hand, is the largest copper fund at $97 million, but has a 0.70 percent  expense ratio and invests in only 27 stocks.

The Market Vectors Steel Fund (NYSEArca: SLX) is the largest fund in the steel segment. The fund invests in 26 companies and has an expense ratio of only 0.55 percent.  Its competitor, the PowerShares Global Steel Portfolio (NYSEArca: PSTL) has only $4.3 million in AUM and an expense ratio of 0.75 percent, but invests in 62 mining companies.

Investors looking to profit from a rebound in the market and business confidence have options.

Industrial sectors are one option, and investing in industrial metals mining is another.  It’s always wise  to be thinking about what stocks can benefit the most from an upswing in the market.


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