With crude oil flirting at $100 a barrel, it was not surprising to see another alternative energy type ETF launch today.
But Van Eck's Market Vectors - Coal ETF (KOL) is a bit of a different animal. The fund tracks coal markets, an old-line industrial sector now coming into vogue as oil prices keep soaring.
Van Eck tends to launch ETFs covering overlooked areas of the market missed by larger ETF providers. The firm, which now has just 10 ETFs counting KOL, nonetheless offers investors exposure to some interesting opportunities. Other U.S.-listed ETFs in Van Eck's stable cover Russia (RSX) as well as the only one to cover nuclear energy (NLR). Another one-of-a-kind ETF is the Van Eck Market Vectors Steel ETF (SLX). It was the best-performing ETF of 2007, up 83.34%.
The Market Vectors Coal ETF joins the list of Van Eck's first-mover funds. KOL tracks the recently released Stowe Coal Index, which covers 60 companies from around the world that are involved in the coal industry. The index was up over 103% in 2007 and has a three-year annualized return of 43.81%. Presumably, much of this is based on back-tested data, but even back-tested returns of more than 100% are pretty impressive. Of course, on the heels of such a run-up, one has to wonder, how much further can the industry go?
We, of course, don't know. However, with oil playing a flirtatious game with $100/barrel prices and the world's endless appetite for energy, there could be some more room for the industry to grow. Stowe Coal Index Committee Chairman Joseph LaCorte called coal "one of the world's most overlooked commodities."
According to the World Coal Institute, it meets roughly a quarter of the world's energy demand and is the source of 40% of the world's electricity. And global use of coal has risen 65% in the past decade, with much of that increase apparently coming from the Asia-Pacific region, where China and India are among the nations undergoing rapid growth and industrialization. Incidentally, China is by far the largest producer of coal and one of the largest exporters, but it is also among the top 10 importers: Therefore, it's not unreasonable to conclude that investing in the global coal industry means taking on major exposure to China, one of the world's hottest - and most volatile - economies.
KOL is also tied closely to SLX. The World Coal Institute estimates that 17% of the world's output of coal is claimed by the steel industry and that 70% of total global steel production is powered by coal.
The index is weighted by float-adjusted market capitalization and includes stocks from 12 countries. Components are involved in five areas of the coal industry that basically cover every part of the process, from the extraction to the end use of coal: mining and production (73.1%), mining equipment (9.0%), transportation (0.7%), technology (2.3%), and power generation (14.9%).
The top five components include China Coal Energy, 8.91%; Bumi Resources, 8.62%; China Shenhua Energy Co., 8.22%; CONSOL Energy Inc., 7.52%; and Peabody Energy, 7.31%. The top five countries in terms of representation in the index are the United States at 39.6%, Hong Kong at 24.0%, Indonesia at 11.0%, Australia at 9.2% and Canada at 5.8%. China represents just 2.5% of the index, but the index's Hong Kong-listed stocks probably offer significant additional exposure to mainland China.
KOL charges an expense ratio of 0.65%.
Written by Heather Bell
• More on Energy ETFs