Does Your Portfolio Need A Coal ETF? - Commodity ETFs
05 Janeiro 2012 - 7:17AM
Zacks
Although coal investments had a rough 2011, this year could be
very different for the much-maligned industry. Solar power is
nearly on its deathbed and wide adoption of wind power still seems
like it is several years away at least (see First Solar Guidance
Routs Solar ETFs). Given this lack of viable clean alternatives, as
well as the rising price of oil, there is definitely reason to
believe that coal could make a comeback this year.
Beyond a rebound from beaten down prices, investors could also
be well served by looking at the space from a diversification
standpoint as well. That is because many coal-focused firms are on
the small end of the scale and are often overshadowed by their
giant cap brethren in many energy-centric ETFs. In fact, in XLE the
biggest energy ETF by assets under management, two of the biggest
coal firms, Consol and Peabody, make up less than 2% of total
assets while Exxon (XOM) and Chevron (CVX) combine to make up
nearly one-third of the entire portfolio. Thanks to this reality,
as well as the strong fundamentals of the coal sector in the medium
term, an investment in this energy industry could be worth looking
into via either of the two coal ETFs highlighted below:
Market Vectors Coal ETF (KOL)
This popular ETF tracks the Stowe Coal Index which is a
rules-based, modified-capitalization-weighted, float-adjusted index
intended to give investors a means of tracking the overall
performance of a global universe of listed companies engaged in the
coal industry. Currently, the fund holds 34 securities in total and
charges investors 59 basis points a year in fees (also read Three
Low Beta Sector ETFs).
KOL is heavily exposed to American coal firms which make up
about 40% of the total exposure although the fund does have
significant holdings in the Asia-Pacific region as well. In fact,
three countries from this area of the world—China, Indonesia, and
Australia—combine to make up another 50% of the fund. In terms of
individual securities, Hong Kong-listed China Shenhua Energy takes
the top spot and is then followed by two American coal companies to
round out the top three; Consol Energy (CNX) and Peabody Energy
(BTU). For performance, KOL is down 29.5% over the past 52 weeks
but it has surged in the past quarter, gaining 18.8% in that
period.
PowerShares Global Coal Portfolio (PKOL)
PKOL is the upstart in the coal ETF space as the fund has not
captured the same level of assets as its Market Vectors
counterpart. However, the fund does track a similar index to KOL,
although it uses a modified market cap weighting system to track
the NASDAQ OMX Global Coal Index. With this focus, the fund holds
30 securities in total and charges investors a slightly higher
expense ratio of 75 basis points (read Top Three High Yield Sector
ETFs).
PKOL also has a heavy focus on the U.S. and the three key Asian
markets, but it is more spread out than its counterpart, allocating
just 27% to the U.S. Additionally, the fund also gives a 10.3%
weighting to Canada, helping to spread the assets further across
North America. Individual holdings are also similar—both share the
same top three holdings—but PKOL actually is less concentrated in
its top then than KOL in its top ten. For performance, PKOL has
suffered in 2011, plunging by 33.2% on the year although it did
manage to turn things around in the final quarter, rising by 16.6%
in the period.
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PEABODY ENERGY (BTU): Free Stock Analysis Report
CONSOL ENERGY (CNX): Free Stock Analysis Report
CHEVRON CORP (CVX): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
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