ETF Update: Metals, Mining, and Steel

by: Tom Lydon

As commodities become all the rage with investors, commodities ETFs have proliferated alongside them.

ETF Expert's Gary Gordon for Equities Magazine has five mining-focused funds that might fit an investor's risk profile:

  • Market Vectors Gold Miners Fund (NYSEARCA:GDX): As investors turned to gold as a safe haven earlier this year amid Federal Reserve rate cuts, this ETF received some attention. On average, more than 4,000,000 shares of GDX trade in a day. The index targets 30 companies around the world that mine gold and silver. The ETF is 77% concentrated in Canada and South Africa. A sharp drop in the price of gold could hit this fund hard, though. Year-to-date, it's up 3.4%.
  • SPDR S&P Metals and Mining (NYSEARCA:XME): This ETF benefits from the global infrastructure demand and tracks 25 companies in the material/energy acquisition business. It is diversified across steel producers, coal miners, and zinc and palladium extractors. Year-to-date, it's up 27.4%.
  • Market Vectors Coal (NYSEARCA:KOL): Foreign exposure is key with untapped, emerging markets such as Thailand and Indonesia as the base. This ETF is made up of both coal producers and coal consumers. It's one of the easier ways to directly capitalize on growing demand for the commodity. It's up 26% since its Jan. 15 inception.
  • iShares MSCI Chile Fund (BATS:ECH): Copper is the commodity of choice in this fund, as Chile is responsible for one-third of the world's copper production. Year-to-date, it's up 4.7%. Copper is used in every major industry, and growth among emerging markets will only further fuel demand for it.
  • iShares MSCI South Africa Index (NYSEARCA:EZA): Natural resources go with South Africa like salt goes with pepper, and the ETF follows correlated segments of the country's economy, including materials, energy, metals, and commodities. This ETF might appeal to aggressive investors. Year-to-date, it's up 5.2%.

Global Infrastructure ETFs Could Build Up If Steel Will Level Off

Infrastructure spending around the globe is booming, as developed nations are maintaining what they have while emerging countries are building up, meaning that those related ETFs could rally both now and later.

Zoe Van Schynedel for The Motley Fool says the infrastructure upgrades going on in the world today involve transportation networks, energy pipelines, water supply systems, communications networks, sewers and wastewater treatment systems.

That's a lot going on at once from an investment standpoint.

There are two ETF approaches to take when considering where to put your money if this is a sector you'd like to get into.

A broad range of sectors and companies can be accessed with SPDR/FTSE Macquarie Global Infrastructure 100 (NYSEARCA:GII). GII follows around 100 companies of within management, ownership and operation of infrastructure and utility assets. A narrower focus can be had with the iShares S&P Global Infrastructure Index (NYSEARCA:IGF),which holds 75 stocks involving utilities, industrials and energy in both developed and emerging markets.

One caveat, though: the rising cost of steel is leading to projects being scaled back or halted altogether, both here and abroad. Could this hurt infrastructure and companies involved in both emerging and developed markets? Once the world's economy stabilizes some and projects are picked up again, perhaps this sector will see some renewed vigor.

Year-to-date, GII is down 2.6% and IGF is down 4.5%.