EVX: A Wasted Opportunity?

| About: VanEck Vectors (EVX)

Summary

EVX is composed of well-established and arguably the best companies in this industrial subsector.

In most cases waste treatment, recycling and management is required by law.

Oddly, there seems to be very little interest in this really solid fund.

"The vast loneliness is awe-inspiring and it makes you realize just what you have back there on Earth", crackled the voice of astronaut Jim Lovell from the speakers of millions of television sets. It was from a live broadcast on Christmas Eve in 1968 as his Apollo spacecraft circled the moon and planet earth rose over the lunar horizon. It was the first time in history that people were able to see their home planet in its entirety. Concern for the environment was just happened to be one of the many critical issues of the Day and the stunning photo of the gem like sphere compared to the desolate gray lunar surface may have been the spark which led up to the first 'Earth Day', April 22, 1970. It was an unusually warm April day and hundreds of thousands turned on in cities across the nation. What had started as a fringe movement had by then galvanized the environmental conscious of millions of individuals from of all walks of life. Perhaps it was all because of that first full view of planet Earth.

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To be fair, the environmental movement which had begun in the late 1960s should more properly be called a revival of a conservationist movement which had its roots in the newly colonized Americas. As early as 1652, a protected public water supply had been established in Boston and other newly established municipalities followed suit. However, the concept didn't stick. The rapidly growing cities of the United States were foul with untreated sewage and haphazard trash disposal, to put it mildly. Thankfully the beauty and raw power of natural wilderness did not go completely unnoticed. Novels such as James Fennimore Cooper's "The Last of the Mohicans," Herman Melville's "Moby Dick" or Jack London's "Call of the Wild" well described the beauty and savagery of nature.

It was two champions of the great outdoors, the poet and naturalist John Muir and a U.S. President, Theodore Roosevelt, who teamed up and rode the wave of a growing and popular conservationist movement. During his administration Roosevelt established five new national parks and created the legislation which legally empowers Presidents to create national parks without congressional approval.

One of the unpredictable outcomes of the Second World War was the power and influence accumulated by the gigantic war industry. Further, a war weary and rubble strewn world had long since forgotten the importance of the natural environment. Reconstruction largely ignored environmental concerns world-wide. It wasn't until environmental activist and biologist, Rachel Carson published "Silent Spring" did the conservationist movement, now called 'environmentalism' come to the forefront of American politics. Although often chided as 'left wing politics' it was an arch conservative, President Richard Nixon, who sign several environmental bills into law, culminating in the National Environmental Policy Act which mandated the U.S. Government to be the protector of earth, air, land and water as well as "...to create and maintain conditions under which man and nature can exist in productive harmony..."

Many federal and state agencies, laws and regulations have emerged, creating an enormous bureaucracy which still fails spectacularly, sometimes, in their mission to protect the environment as well as citizens. In fact, an entire specialized subsector of private industry has evolved out of the understanding of the need for the maintenance of a safe and healthy environment, especially when it comes to the proper collection, handling, recycling or disposal of waste. It is in this subsector that Van Eck's Market Vectors offers retail investors the opportunity to invest is this growing industry through its Environmental Services ETF (NYSEARCA:EVX).

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A word of warning: the fund is very lightly traded with an average 3 month volume under 1000 shares. Why this should be so is something of a mystery. As the chart above demonstrates, the fund has consistent annual distributions and has had consistent gains since the funds inception in October of 2006. From the fund's all-time low of $23.28 in early March of 2009 it steadily went on to its all-time high of $67.19 by the end of June in 2014; that's a gain of about 188.6%!

The fund has only 23 holdings, but most are large cap leaders in the field of waste disposal. Further, these companies are not just 'trash haulers' but cover a wide range of specialized and regulated waste disposal services, but more on that a few lines down. The fund tracks the NYSE-Arca Environmental Services Index (AXENV). The fund has total net assets of $15.7 million with 250,000 shares outstanding. It is currently trading at a $0.01 premium to NAV, or 0.02% and has an after expense SEC yield of 0.99%. The fees and expenses are a bit complicated but after waivers and reimbursements is 0.55%, compared with the ETF industry average of 0.44%. Also, footnote #2 on the 'snap-shot' page notes that fees "are capped contractually at 0.55% until at least February 1, 2017."

Performance

1 Month

3 Months

Year to Date

1 Year

3 Years

5 Years

Since Inception 10/10/06

EVX ((NYSE:NAV))

10.78%

10.46%

10.46%

1.97%

6.05%

5.11%

6.40%

EVX ETF Price

10.70%

10.07%

10.07%

2.31%

6.29%

5.14%

6.41%

AXENV Index

10.85%

10.64%

10.64%

2.57%

6.53%

5.65%

6.94%

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Although the Market Vectors uses the long established and traditional sector designations, it is difficult to gauge the allocation since different types of companies offer similar products and services. Further, many of the larger waste disposal companies do it all. Among the top weighted companies is Waste Management (NYSE: WM). The company is a 'one-stop-shop' for both home and business. Their services include curbside pickup, recycling, medical waste and large trash containers for home and business. Further, the company offers other services such as security and the recycling old batteries by mail. WM also services large industry, municipalities, construction, schools and federal government. A close second in market cap but equally diverse in waste disposal scope and services is Republic Services (NYSE: RSG). The combined market cap of just these two companies is in excess of $41 billion.

Full Service, Solid Waste

% Weight

Market Cap (in USD Billions)

Yield

Dividend

Div/EPS

P/E

Total Debt/Equity

Institution Interest

Waste Management

10.01%

$25.660

2.84%

$0.41

24.70%

34.72

168.03%

81.65%

Waste Connections Inc (NYSE:WCN)

9.87%

$7.756

0.92%

$0.14

NMF

NMF

111.37%

97.32%

Republic Services Inc

9.85%

$15.952

2.59%

$0.30

14.08%

21.68

97.43%

96.97%

Progressive Waste Solutions (NYSE: BIN)

3.78%

$3.308

1.72%

$0.13

11.67%

26.9

137.37%

0.00%

Covanta Holding Corp (NYSE: CVA)

3.73%

$2.116

6.14%

$0.25

51.02%

32.97

385.89%

95.35%

Averages

7.45%

$10.96

2.84%

$0.25

25.37%

29.07

180.02%

74.26%

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It's also worth noting some specialized niche companies, for instance Waste Connections which along with the usual collection services, gathers non-hazardous oilfield waste materials from the Permian, Bakken and Eagle Ford Basins. Companies such as Progressive Waste Solutions generate electricity from landfill gas as well as fueling their collection-truck fleet by natural gas. Covanta Holding also generates power but from burning collected municipal waste. Further, it isn't merely burn-and-release. The entire process is controlled from start to finish so that any gases remaining are 'scrubbed' before release and the ash generated is used as landfill cover. However, this company and others which generate energy from waste then scrub and reuse incineration by-products may not be so attractive in the light of extremely low fossil fuel energy prices. Keep in mind that the premise is combine sustainability with profitability. Low fossil fuel prices often override environmental concerns.

Infection Control; Medical Waste

% Weight

Market Cap (in USD Billions)

Yield

Dividend

Div/EPS

P/E

Total Debt/Equity

Institution Interest

Stericycle Inc (NASDAQ: SRCL)

10.44%

$10.771

0.00%

$0.00

0.00%

42.67

117.74%

96.08%

Steris Plc (NYSE: STE)

3.96%

$6.030

1.42%

$0.25

16.78%

47.04

55.10%

98.41%

Cantel Medical Corp (NYSE: CMN)

3.94%

$2.955

0.17%

$0.06

4.54%

53.52

31.23%

85.08%

Averages

6.11%

$6.59

0.53%

$0.10

7.11%

$47.74

68.02%

93.19%

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Medical waste is something most people don't take into consideration. In the summer 1988 a trickle of syringes began to wash up on New York and New Jersey beaches. By 1991 the trickle turned into a tide forcing governments to close area beaches and begin a massive cleanup costing the two states an estimate $1.5 billion in revenues. This incident led to increased government oversight and regulation as well as the creation of specialized medical waste disposal management companies. Stericycle is the fund's largest holding and is a specialist in medical, hazardous and pharmaceutical waste. In an age of antibiotic resistant organisms and contamination in food processing, infection and contamination control can be a matter of life or death. One recent example was the food contamination at several Chipotle (NYSE: CMG) restaurants, which forced the closings of stores and threatened the existence of the company itself. Companies such as Steris Plc and Cantel Medical (NYSE CMN) are focused specifically on infection prevention, contamination control for surgical and critical care technologies.

Specialized Waste Services

% Weight

Market Cap (in USD Billions)

Yield

Dividend

Div/EPS

P/E

Total Debt/Equity

Institution Interest

US Ecology Inc (NASDAQ: ECOL)

3.93%

$0.915

1.71%

$0.18

15.25%

35.69

114.68%

88.83%

ABM Industries Inc (NYSE: ABM)

3.90%

$1.795

2.06%

$0.17

19.54%

36.73

28.79%

92.57%

Clean Harbors Inc (NYSE: CLH)

3.87%

$2.766

0.00%

$0.00

0.00%

63.43

126.11%

99.61%

Averages

3.90%

$1.825

1.26%

$0.12

11.60%

45.28%

89.86%

93.67%

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There seemed to be no end to the types of industrial waste. For example, radioactive waste and other highly hazardous waste products. US Ecology specifically addresses the need for those special services in both the commercial and government fields. Canadian based Clean Harbors provides a wide range of clean-up services, including emergency response, large scale projects and demilitarized explosives disposal to name a few. On a softer note, ABM Industries provides building and facility maintenance services from regular housekeeping services to facility HVAC and mechanical operations maintenance.

Innovative Industrial Waste

Treatment

% Weight

Market Cap (in USD Billions)

Yield

Dividend

Div/EPS

P/E

Total Debt/Equity

Institution Interest

Darling Ingredients Inc (NYSE: DAR)

4.12%

$2.164

0.00%

$0.00

0.00%

27.67

104.77%

0.00%

Tetra Tech Inc (NYSE: TTEK)

3.94%

$1.735

1.08%

$0.08

13.33%

49.59

22.53%

98.02%

Tennant Co (NYSE: TNC)

3.93%

$0.911

1.55%

$0.20

11.49%

29.65

9.77%

88.00%

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Other companies handle environmentally unfriendly waste by putting it to better use. For example Darling Ingredients, under several brand names, reprocesses food oil waste into bio-diesel, organic nutrition from fertilizer recovered from animal feed processing and the processing animal waste for electric generation to name just a few of their 'waste-not-want-not' branded products. DAR is, perhaps, the most innovative company in the fund. Tetra Tech comes under the heading of sustainability consulting and engineering through data analytics and project modeling. Among the more unique regions TTEK serves is that within the Arctic Circle. The company specializes on planning, engineering, construction for environmentally efficient operations under the most extreme cold conditions.

Specialized Filtering

% Weight

Market Cap (in USD Billions)

Yield

Dividend

Div/EPS

P/E

Total Debt/Equity

Institution Interest

Clarcor Inc (NYSE: CLC)

3.77%

$2.722

1.57%

$0.22

8.53%

21.78

37.55%

97.81%

Donaldson Co Inc (NYSE: DCI)

3.68%

$4.101

2.20%

$0.17

12.98%

23.52

92.85%

83.52%

Tenneco Inc (NYSE: TEN)

3.54%

$2.668

0.00%

$0.00

0.00%

11.34

279.45%

94.30%

Ceco Environmental Corp (NASDAQ: CECE)

1.98%

$0.205

4.36%

$0.07

NMF

NMF

74.15%

57.08%

Calgon Carbon Corp (NYSE: CCC)

1.94%

$0.684

1.48%

$0.05

6.10%

16.42

26.38%

98.77%

Averages

2.98%

$2.08

1.92%

$0.10

6.90%

18.265

102.08%

86.30%

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One area the fund covers thoroughly is that of specialized filter manufacturers and in total, weights about 15% of the fund, averaging about 2.98% over 5 companies. Clarcor is, by the company's website,:

The most diversified filter company in the world... ... We clean the liquids used in engines, from trucks to airplanes to locomotives. We filter the air and fluids used in manufacturing plants to decrease pollution, remove odors, reduce energy requirements and improve efficiency. We remove the water and contaminants from natural gas and oil to help meet the world's energy needs...

Companies such as CLC will do well in almost any economic environment, especially since their products and services are needed by industries which are required by law to adhere to pre-set environmental standards. Similarly, Donaldson Co produces industrial "filtration solutions for a cleaner world" Tenneco manufactures filters mainly for the transportation industry, as well as ride performance parts, for example shock absorbers. Ceco focuses on industrial air and fluid filtration and Calgon Corp focuses mainly on water filtration from municipal distribution down to private homes.

Water, Drilling, Metals

% Weight

Market Cap (in USD Billions)

Yield

Dividend

Div/EPS

P/E

Total Debt/Equity

Institution Interest

Layne Christensen Co (NASDAQ: LAYN)

2.04%

$0.140

0.00%

$0.00

0.00%

NMF

112.93%

0.00%

Schnitzer Steel Industries Inc (NASDAQ: SCHN)

1.97%

$0.488

4.11%

$0.19

NMF

NMF

38.96%

91.91%

Newpark Resources Inc (NYSE: NR)

1.89%

$0.335

0.00%

$0.00

0.00%

NMF

34.33%

0.00%

Averages

1.97%

$0.32

1.37%

$0.06

0.00%

NMF

62.07

30.64%

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The smaller fund holdings cover metal recycling company Schnitzer Steel and water management and drilling companies Layne Christensen and Newpark Resources. It needs to be noted that the products and services provided by both LAYN and NR, are closely related to the oil & gas drilling industry. It's sufficient to say that there's a direct relationship with the demand for drilling which is a significant portion of, but not entirely, a segment of their business.

This concludes a brief overview of the fund. However, it still remains something of a mystery as to why the fund doesn't attract more interest. The top weighted holdings are large cap industrials in a sector of the economy which demands their services and products by law! True, demand for those services might diminish somewhat in economic downturns and the energy sector has been under pressure recently, but trash must be collected, materials must be recycled, water must be treated, vehicle emissions must be scrubbed. In other words, its accurate to say that the waste treatment subsector of the industrial sector is mostly non-cyclical.

Perhaps the fund's name gives the wrong impression. However, this may be to an investor's advantage. If this specialized fund were part of an ETF portfolio, there's likely to be very little overlap with other specialized funds and yet provide distributions. Further, as noted, seems to be a non-cyclical holding. If your goal is long term and not just for a trade, you might just clean up in the long run with this fund.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: CFDs, spread-betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.