As Aluminum Prices Soar, Profit By Investing In A Base Metal ETP
Investing.com | Nov 02, 2021 20:46
Aluminum prices recently posted multi-year highs, and the Dow Jones Aluminum Index has returned more than 99% so far in 2021. The benchmark also hit a multi-year high on Oct. 18.
Earlier in the year, we discussed various properties and uses of this base metal, expressing a bullish view. At the time, the Dow Jones Aluminum Index was shy of 90. Now, it is over 155.
h2 iPath® Series B Bloomberg Aluminum Subindex Total Return ETN/h2Meanwhile, the iPath® Series B Bloomberg Aluminum Subindex Total Return ETN (NYSE:JJU), an exchange-traded note that tracks the Dow Jones-UBS Aluminum Subindex Total Return, is up 34%.
JJU is currently the only exchange-traded product (ETP) tracking aluminum futures in the US. Therefore, it is a pure-play on aluminium futures.
However, ETNs behave differently than exchange-traded funds (ETFs). Thus, new investors might want to revisit an earlier article where we discussed characteristics of ETNs, which are not suitable for all market participants.
Many of our readers are likely to also follow several of the leading companies that focus on aluminum. They include:
- Alcoa (NYSE:AA) – up 97.8% year-to-date (YTD);
- Aluminum Corp of China (NYSE:ACH) – up 72.1% YTD;
- Arconic (NYSE:ARNC) – up 1.1% YTD;
- Century Aluminum (NASDAQ:CENX) – up 19.9% YTD;
- Constellium (NYSE:CSTM) – up 34.2% YTD;
- Kaiser Aluminum (NASDAQ:KALU) – down 1.8% YTD;
- Reliance Steel & Aluminum (NYSE:RS) – up 22.5% YTD.
In other words, despite the increase in the price of aluminum, share prices of these companies have had different fortunes.
With that information, here are two other funds that give access to the moves in aluminum prices.
h2 Invesco DB Base Metals Fund/h2Current Price: $21.36
52-Week Range: $15.65 – $24.00
Expense Ratio: 0.77% per year
The Invesco DB Base Metals Fund (NYSE:DBB) is a futures-based commodity fund that tracks the DBIQ Optimum Yield Industrial Metals Index Excess Return. The fund gives access to futures contracts on aluminum, copper and zinc.
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DBB began trading in January 2007. Its net assets stand around $457.3 million. The fund returned 36% in the past 12 months and almost 23% in 2021. It also reached a multi-year high in mid-October, around the time when copper saw an all-time high and zinc hit a multi-year high.
Recent metrics highlight :
“The Global Base Metals Market is projected to register a CAGR of around 5% during the forecast period (2021-2026).”
Analysts point out that infrastructure spending and the growth of alternative energy technologies, including solar energy and electric vehicles, should provide tailwinds for the consumption of base metals worldwide. Therefore, for readers bullish on these three base metals, DBB is a convenient vehicle to invest in commodity futures.
h2 iShares US Basic Materials ETF/h2Current Price: $134.17
52-Week Range: $94.57 – $141.81
Dividend Yield: 1.34%
Expense Ratio: 0.41% per year
The iShares US Basic Materials ETF (NYSE:IYM) invests in shares of companies in the basic materials sector. It was first listed in June 2000.
IYM, which has 37 holdings and tracks Russell 1000 Basic Materials RIC 22.5/45 Capped Gross Index. The top 10 names make up about 63% of net assets of $858 million.
In terms of sectors, we see specialty chemicals (22.98%) followed by commodity chemicals (12.98%), steel (10.93%), industrial gases (9.86%), copper (9.10%), gold (7.58%) and others. Aluminum’s weighting stands at 1.44%. In other words, it provides limited exposure to the metal.
Leading stock include the industrial gases heavyweight Air Products and Chemicals (NYSE:APD); Ecolab (NYSE:ECL), which focuses on water treatment, purification and sanitation; miners Freeport-McMoRan (NYSE:FCX) and Newmont Goldcorp (NYSE:NEM); and chemicals group Dow (NYSE:DOW).
The fund returned 38.2% in the past year, and 18.6% YTD. IYM reached a record high in May. Since then, it has lost about 5%. Potential investors could regard a decline toward $130 as a better entry point.
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