Graham Tuckwell, who created a $125 billion market in exchange-traded gold in less than a decade, is struggling to convince regulators and investors he can do the same for industrial metals.
More than a year after he sought permission to start an exchange-traded product backed by copper held in warehouses, the U.S. Securities and Exchange Commission has yet to approve the plan. Investors in a similar London-listed fund from Tuckwell’s ETF Securities Ltd. accumulated just $13.2 million of copper since December 2010, equal to about 46 minutes of global demand, data compiled by Bloomberg show.
While Tuckwell created a class of securities now backed by 2,405 metric tons of gold, exceeding the reserves of all but four central banks, he’s had less success with industrial metals. The new products are opposed by some consumers concerned they will cause shortages of materials used in everything from cables to cars, while the U.S. Commodity Futures Trading Commission is trying to limit speculation.
“As you move away from the typical investment products to things that would be viewed to be more usable commodities, regulators become more concerned,” said Deborah Fuhr, a co- founder of London-based research group ETFGI LLP and the former head of ETF research at BlackRock Inc. “Graham really was the guy who brought the first exchange-traded gold product to the markets. As you move into other commodities, though, they tend not to be seen as an investment by most investors.”
The drive to list U.S. ETPs backed by copper comes at a time of tumbling prices. The LMEX gauge of six metals declined 16 percent since this year’s peak on Feb. 9 as the Standard & Poor’s GSCI Spot Index of 24 commodities retreated 16 percent. Commodities fell 1.1 percent to 569.23 today, the lowest since 2010, and will be in a bear market if they close at that level.
Investor demand also may be stifled by the warehouse storage costs associated with industrial metals. ETF Securities’ London-listed copper ETP has annual management and insurance expenses of 0.81 percent and a rental fee of almost $150 a ton per year, data on the company’s website show. That compares with an annual expense of 0.39 percent for its gold-backed ETP.
“The challenge is straightforward,” said Dave Nadig, the director of research at IndexUniverse LLC, a San Francisco-based ETF analysis group. “I can hold a million dollars worth of gold in my hand, but I would have to stack aluminum up as high as my house to get a million dollars.”