The Best Aluminum ETFs: How To Invest in Aluminum in 2022

Aluminum market fundamentals are the strongest they’ve ever been, and aluminum stocks have rallied over the past year. Although some of the strength is due to China’s supply constraints, longer-term, the shift to EVs will continue to boost demand for this lightweight metal. Low-carbon aluminum is also a possibility. Learn how you can invest.

Anna Ng   Updated February 15th, 2022

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Why invest in aluminum?

Most aluminum goes into cars and construction, though you can also find it in soda cans, packaging, and planes. The post-pandemic growth in global car sales is driving demand, and, in the long run, China’s push into electric cars will require more aluminum.

Electric cars need 30%+ more aluminum than cars with an internal combustion engine. Aluminum is lightweight, and if cars weigh less, their lithium-ion batteries last longer on a single charge. Aluminum is used in both electric car battery packs and bodies.

Aluminum prices increased by over 50% over the past year and nearly 20% in 2022. Supply remains tight due to Covid-related restrictions in China, the largest aluminum producer. Smelting aluminum is energy-intensive, and high energy prices in China and Europe aren’t helping. At the same time, the market worries about geopolitical tensions between Ukraine and Russia, a major aluminum producer.

Aluminum prices are soaring

Source: London Metal Exchange

How to invest in aluminum: aluminum ETFs

Although aluminum futures, which are financial contracts tied to the price of aluminum, are listed on the London Metal Exchange, trying to buy futures is too complicated for most regular investors. (Most brokers don’t even support trading futures.) Instead, you can invest in an exchange-traded fund (ETF) that will buy aluminum futures for you.

What is an ETF?

Exchange-traded funds are baskets of securities like stocks, bonds, or futures, that trade on exchanges like stocks. You can easily buy them from any broker during market hours. Although most brokers no longer change a commission to buy or sell ETFs, there is a difference between the price at which you buy and sell ETFs. Also, ETFs are not free – you need to pay an annual management fee, also known as the expense ratio, to the company issuing the ETF.

🔔 Here is the list of the top 10 online brokerage apps where you can buy ETFs.

There aren’t many ETFs that only invest in aluminum. Popular metals and mining or base metal ETFs like iShares MSCI Global Metals & Mining Producers ETF (PICK) or iShares US Basic Materials ETF (IYM) invest only 2-5% of their assets in aluminum.

Aluminum ETF list

  • Invesco DB Base Metals Fund (DBB)
  • iPath Series B Bloomberg Aluminum Subindex Total Return ETN (JJU)

Instead, the best aluminum options are the Invesco DB Base Metals Fund (DBB) and the iPath Series B Bloomberg Aluminum Subindex Total Return ETN (JJU).

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Read more about each fund:

Invesco DB Base Metals Fund (DBB)

  • Assets under management: $537 million
  • Expense ratio: 0.77%
  • 1-year performance: 35.6%

Launched in 2007, the Invesco DB Base Metals Fund (DBB) invests in base metal futures. Base metals are common, inexpensive metals like aluminum and copper, as opposed to precious metals like gold or silver. The three metals DBB invests in are aluminum, copper, and zinc. Aluminum is the top holding at 46% of the fund’s net assets, followed by copper and zinc. Although DBB doesn’t only invest in aluminum, copper is another very important metal in the transition to electric mobility.

DBB returned over 3% in 2022, in spite of the market rout.

The ETF manager, Invesco, notes that the fund isn’t suitable for all investors because the underlying futures are highly volatile. The fund costs 0.77% or $77 on a $10,000 investment each year.

iPath Series B Bloomberg Aluminum Subindex Total Return ETN (JJU)

  • Assets under management: $18.7 million
  • Expense ratio: 0.45%
  • 1-year performance: 50%

If you want to invest only in aluminum, the iPath Series B Bloomberg Aluminum Subindex Total Return ETN (JJU) lets you do just that. Launched in 2018, JJU invests in aluminum futures contracts. The contracts are continuously rolled over as old futures contracts expire. This fund is cheaper than DBB, costing only 0.45% annually. It also returned nearly 8% in 2022 through mid-February.

ETFs vs. ETNs

However, JJU is an exchange-traded note (ETN), not an exchange-traded fund (ETF). What’s the difference?

ETNs are structured differently from ETFs – an ETN is a promissory note (a promise to pay) issued by a bank, in this case, Barclays. Unlike an ETF, which buys and holds the underlying securities, an ETN doesn’t own anything. The Note’s backer (Barclays) promises to pay the return of the underlying index. Since the ETN does not hold securities, it can match the return of the index perfectly, eliminating tracking error. However, an ETN carries the credit risk of the issuer, so if Barclays goes bankrupt, investors may not get their money back.

💰 Which aluminum ETF is best?

  • JJU is the better option if you just want to invest in aluminum
  • If you are ok with adding other best metals, like copper, DBB is also a solid choice

How to invest in aluminum: aluminum stocks

If you want to invest in companies that actually make aluminum or aluminum products, check out this list of aluminum stocks.

NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.

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