Copper was one of the first metals ever used by humans. Archaeological digs in western Asia have revealed that knives and jewellery were already being formed from the red metal more than 10,000 years ago. The invention of electric power and magnets in the late 18th and early 19th centuries paved the way for industrialisation, and with it a new era for copper. The particularly conductive and corrosion-resistant material became indispensable for more and more applications, the spectrum ranging from construction through power supply to electronics. According to figures from the International Copper Study Group (ICSG), worldwide copper consumption has almost quadrupled in the last 50 years. The largest buyer is now China – almost 60% of global demand comes from the Middle Kingdom. Mega-trends such as artificial intelligence, e-mobility and the energy transition are providing additional stimulus to the demand for copper.
In light of this background, copper has long been an interesting and very promising focus of investment, giving investors an opportunity to bet on global progress and long-term growth. Nevertheless, access to this asset class is far from easy. Like other commodities, copper is traded on the futures market. Anyone want to take a permanent position is reliant on the regular exchange of such futures. Special commodity indices provide a solution by replacing an expiring contract with the next one to mature. In the jargon this is known as “rolling”. Among places where copper is traded is the Comex, the US commodity index. A contract comprises 25,000 pounds of the metal, with prices quoted on a per-pound basis. The trade covers 37 consecutive months, followed by further futures for individual months. This allows market players to secure, today, a copper delivery for May 2030.
Another defining characteristic of commodities trading alongside futures is that they are priced in US dollars. If held in Swiss francs, then, the value of the position is also affected by the USD/CHF exchange rate. In that regard the notoriously strong franc has been having a negative impact on the commodities holdings of domestic investors for years. In the last twelve months alone, the greenback has depreciated by more than a tenth against the franc. The Leonteq Copper CHF Hedged Index was created with the aim of excluding this currency effect. The new benchmark tracks the performance of a CHF position in the copper future and features a daily currency hedging mechanism on the USD/CHF exchange rate. The underlying futures contract is swapped every two months.
Investors can access the Leonteq Copper CHF Hedged Index by means of an exchange-traded product (ETP). The structured product tracks the underlying without any term limit and can be traded daily on both the SIX and the BX Swiss. Alongside high flexibility and liquidity, the ETP also applies a special hedging mechanism. To exclude the issuer risk as far as possible, Leonteq deposits a pledge with SIX SIS AG. The collateralisation is dynamic: as soon as investors put money in or the value of the ETP rises, the issuer tops up the pledge. SIX Repo AG is responsible for monitoring this mechanism on an ongoing basis. The management fee for the participation product is 0.20% p.a. By the way, with this latest issue Leonteq is expanding its range of metal investments with currency hedging. As well as copper, investors can also trade ETPs on gold and silver whose underlyings carry the “CHF Hedged” label.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.