As an essential commodity for economic growth and development, copper can be an appealing investment. Advisors looking for exposure to this dynamic market, which is seeing growing demand across a range of sectors, might consider an exchange-traded fund (ETF). One such opportunity is the Sprott Copper Miners ETF (ticker: COPP).
Wealth Advisor Managing Editor Scott Martin invited Steve Schoffstall, Director of ETF Product Management at Sprott Asset Management, to discuss the strategic importance of copper and how his firm’s COPP ETF might fit into a diversified investment portfolio.
Copper is a versatile metal, integral to a wide range of industries, from construction to electronics. Its importance, however, is magnified in the context of the global energy transition and the rise of artificial intelligence (AI), Schoffstall notes. As economies shift toward cleaner energy sources, such as solar, wind, and electric vehicles (EVs), the demand for copper is expected to surge.
For instance, an EV contains approximately 2.4 times more copper than a traditional gas-powered vehicle, while solar and wind energy systems require up to seven times more copper compared to fossil-fuel plants.
The explosion of both AI-driven data centers and cloud computing also significantly boosts copper demand. Leading technology companies, including Microsoft, Meta, and Amazon, rely heavily on copper for their data centers because of its superior electrical conductivity and heat dissipation properties.
This dual demand from clean energy initiatives and the tech industry is concurrent with increasing standards of living on a global scale, which Sprott expects to push the need for electricity up 165% through 2050. Combined, these factors position copper as a critical component of future infrastructure.
The Sprott Copper Miners ETF provides advisors with targeted exposure to companies primarily involved in the mining, exploration, and production of copper. Unlike broader mining ETFs, COPP zeroes in on companies that generate at least 50% of their revenue or assets from activities tied directly to copper.
This approach ensures that investors gain exposure to the specific drivers of copper demand, without the dilution that comes from investments in diversified mining companies that also extract other metals such as iron, zinc, or nickel.
Schoffstall emphasizes that COPP offers a “pure play”1 on copper, a strategic decision based on current and projected market dynamics. The ETF excludes companies with significant operations outside copper, ensuring that its performance closely tracks the copper market rather than being influenced by unrelated commodities. This focused approach makes COPP a targeted vehicle for investors seeking to capitalize on the growth potential of copper in the context of the energy transition and the digital economy.
One of the key factors underpinning the investment thesis for COPP is the supply-side challenges facing the copper industry. Major copper producers, such as the National Copper Corporation of Chile (Codelco), have struggled to meet production targets because of the depletion of easily accessible copper deposits. As miners are forced to dig deeper and explore more remote locations, the cost and complexity of copper extraction increase, potentially leading to supply shortfalls.
These supply constraints are particularly significant given the projected rise in demand. With many easy-to-mine copper resources already exhausted, the industry is entering a phase in which new production requires more sophisticated technologies and significant capital investment. This dynamic is likely to benefit well-managed, capital-efficient copper miners, the very companies that COPP targets.
The selection process for inclusion in COPP is both rigorous and straightforward. Twice a year, Sprott and Nasdaq collaborate to screen the global universe of mining companies, focusing on those that meet the strict criteria of deriving at least 50% of their revenue or assets from copper-related activities.
This process involves narrowing down approximately 750 to 800 mining companies to a final list of about 52, each offering significant exposure to copper. The result is a portfolio that maintains a strong correlation to the price of copper, while also offering diversification away from broader market indexes such as the S&P 500.
Schoffstall notes that COPP has a correlation of approximately 0.8 to spot copper prices, but only about 0.5 to 0.53 to the S&P 500, making this ETF a valuable diversifier within a broader portfolio.
Geographically, COPP is diversified across major copper-producing regions, including Canada, the United States, and Australia. Notably, the ETF excludes exposure to companies operating in mainland China and the Democratic Republic of the Congo (DRC), owing to concerns over governance and social practices in these regions. This exclusion aligns with Sprott’s commitment to investing in companies with high environmental and social standards, further enhancing COPP’s appeal to socially conscious investors.
For financial advisors, COPP offers several compelling use cases within a diversified portfolio. Its strong linkage to the copper market makes the fund a natural fit for the commodity or alternative investment bucket, where it can serve as a hedge against inflation or a play on the global growth of clean energy and technology.
Moreover, COPP can be positioned within thematic investment strategies focused on the energy transition or technological innovation. As these themes continue to gain traction, the ETF provides a direct way to capitalize on the underlying demand for copper, a material critical to both sectors.
The ETF’s emphasis on companies based in jurisdictions with robust environmental, social, and governance (ESG) standards also means the fund can be suitable for investors with a focus on sustainable and responsible investing. As governments worldwide incentivize domestic production of critical minerals such as copper, companies in these regions are likely to benefit from favorable policy environments, adding another layer of potential upside for COPP investors.
As the global economy navigates the challenges of transitioning to clean energy, adapting to the demands of the digital age, and expanding the amount of electricity to power the global economy, copper will play an increasingly central role. The Copper Miners ETF, with its targeted exposure to the companies at the forefront of copper production, offers a strategic way for investors to participate in this critical sector.
For advisors looking to enhance their clients’ portfolios with exposure to a critical commodity, COPP offers a compelling blend of focused exposure, thematic relevance, and potential for growth. The fund provides a pure-play opportunity to invest in this essential metal, with a portfolio constructed to maximize exposure to the drivers of copper demand while minimizing extraneous risks.
For clients interested in commodities, alternative investments, or thematic strategies, COPP is a versatile tool that aligns with the trends shaping the future of the global economy. With its focus on quality copper producers and its alignment with ESG principles, COPP stands out as a forward-looking investment in a world where copper’s importance is only set to increase.
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Additional Resources
- Contact Sprott Asset Management
- Sprott Copper Miners ETF (COPP) Overview
- Sprott COPP ETF Fact Sheet
- Sprott Critical Materials Monthly: Fourth Industrial Revolution Fuels Global Competition for Critical Minerals
- Sprott Radio Podcast: The New Copper Story
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Important Disclosures
An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a Sprott Copper Miners ETF or Sprott Junior Copper Miners ETF Prospectus, which contains this and other information, visit https://sprottetfs.com/copp/prospectus and https://sprottetfs.com/copj/prospectus, contact your financial professional or call 1.888.622.1813. Read each Prospectus carefully before investing.
Investors in the Funds should be willing to accept a high degree of volatility in the price of the Funds’ shares and the possibility of significant losses. An investment in the Funds involves a substantial degree of risk. The Funds are not suitable for all investors. The Funds are considered non-diversified and can invest a greater portion of assets in securities of individual issuers than diversified funds. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in diversified funds.
Shares are not individually redeemable. Investors buy and sell shares of the Sprot Copper Miners ET or Sprott Junior Copper Miners ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 10,000 shares.
Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses, affect the Fund’s performance.
The Sprott Copper Miners ETF seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Nasdaq Sprott Copper Miners™ Index (NSCOPP™).
The Sprott Junior Copper Miners ETF seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Nasdaq Sprott Junior Copper Miners™ Index (NSCOPJ™).
Nasdaq®, Nasdaq Copper Miners™ Index, Nasdaq Junior Copper Miners™ Index, NSCOPP™, and NSCOPJ™ are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Sprott Asset Management LP. The Product(s) have not been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).
Sprott Asset Management USA, Inc. is the Investment Adviser to the Sprott Junior Copper Miners ETF. ALPS Distributors, Inc. is the Distributor for the Sprott ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc.
