Other than the occasional lump at Christmas, most of us don't give a thought to coal. It's not sexy like a windmill. It doesn't have the glow of nuclear.
Yet, coal represents nearly a third of total global energy supply, just behind oil. Thermal coal is used to generate more electricity, 40%, than any other fuel source. Metallurgical coal is vital in steel production. And while oil production has stagnated over the last five years, coal production is up 20%. Nor is coal going away. The International Energy Agency says that even under the most plausible global greenhouse gas agreement, coal will still be a big piece of the energy pie.
So it makes sense to have some pure coal exposure and this Market Vectors Coal ETF (KOL) is the only one that offers it. Launched just two years ago, this ETF invests in 38 coal-related companies. Half of its weight is in US companies, with another 20% and 12% in China and Indonesia respectively.
With the close link to electricity and steel, coal prices are a leading indicator of economic activity. As a result, this ETF's price movement tends to be an exaggerated version of the stock market. From the lows of May 2010, the ETF has rallied by 60% versus about 20% for both the S&P 500 and OIL, a popular crude oil ETF.
Its higher volatility means KOL is not appropriate as a core strategic holding. But it is one of archerETF's preferred ETFs for short-term tactical positions in our client's portfolios.
(For the one-page PDF version of this report, click here.)
Disclosure: No position