Freeport-McMoRan vs. a Copper ETF: Which Is the Better Way to Own Copper?

Commodities are garnering plenty of attention this year, and Copper is certainly part of that scenario. Due in part to compelling demand trends and tariff concerns, among other factors, prices of the versatile metal are soaring.

That's prompting some investors to evaluate copper stocks, including Freeport-McMoRan (NYSE: FCX). Freeport-McMoRan is the largest U.S.-based copper company, supplying 70% of the refined copper consumed in this country, underscoring its prominence in the commodity stocks conversation.

Freeport-McMoRan is a solid stock, but there benefits to investing in copper ETFs. Image source: Getty Images.

That doesn't mean Freeport is the "perfect" copper equity for investors' portfolios. For many investors, an exchange-traded fund (ETF) such as the Global X Copper Miners ETF (NYSEMKT: COPX) is a practical option for gaining equities-based exposure to commodities.

More diversification, less risk

The COPX commodities ETF holds 40 stocks and is valued at about $6 billion, with Freeport-McMoRan as its 11th-largest holding. As is the case with any equity-based ETF, there will be occasions when some of the copper fund's big names outperform the fund, and times when the fund beats those holdings. For example, Freeport-McMoRan is trouncing the ETF this year, but it's a different story over the past five years.

Data by YCharts.

As the chart confirms, investors have been rewarded by embracing the "deep bench" of copper stocks offered by the Global X ETF. No, that doesn't mean that all investors should avoid individual equities and build their portfolios entirely of ETFs and index funds.

Still, when it comes to commodities stocks, ETFs may be solid alternatives to individual names for risk-averse investors. Equities that are essentially commodity proxies, with Freeport as a copper proxy, are notoriously volatile and highly correlated with the prices of the underlying commodity.

Second, there's the issue of single-stock risk. Freeport-McMoRan is a fundamentally sound company, and it offers several tailwinds that may be compelling to long-term investors. However, any corporation can face controversy, rapid share price declines due to management missteps, or other company-specific risks. The Global X Copper Miners ETF isn't perfect, but it mitigates some of the company-specific risk that can arise when holding the fund's components individually.

Both can be winners

Copper isn't for the faint of heart. Still, investors are right to at least evaluate the commodity because artificial intelligence (AI) and electrification are underpinning demand, potentially putting a floor under prices at a time when the copper market is already in a supply deficit.

Additionally, mine growth is sluggish, indicating the supply deficit may not wane anytime soon, and pesky inflation, coupled with soaring government debt burdens worldwide, is prompting more market participants to evaluate hard assets.

All of those scenarios could benefit both Freeport-McMoRan shares and the Global X Copper Miners ETF. Still, the latter is the choice for investors who want a little less stress and a lot more copper equity diversification.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.