Last week, a new exchange traded fund (ETF) covering a commodity that had many asking, "Wait, wasn’t there one for that already?" began trading on the American Stock Exchange.
Market Vectors Coal (KOL), as you might guess from the name, tracks an index made up of 60 companies involved in the mining or transportation of coal, manufacture of coal mining equipment and the production of clean coal.
But with coal’s ubiquity and everyday use, one has to wonder what took so long for a fund that tracks the commodity to finally appear.
Mike Keenan of Stowe Investors and the creator of the Stowe Coal
Index can answer that. "Perhaps it took so long because it was taken
for granted that coal didn’t have the same sex appeal as oil or gold.
Gold has been followed for 5,000 years. Coal is not something people
think about. People associate coal with a character in a Charles
Dickens story set in Victorian London."
Coal’s reputation as a pollutant
isn’t helping matters, either, especially as the movement toward
combating the effects of global warming – ahem – heats up. Keenan is
the first to acknowledge this.
"There’s not a lot of coverage of coal, unless it’s negative.
Because of the danger [in mining it], because it’s dirty, black lung,
global warming…people would rank it up there with cigarette
companies."
As environmental regulations are handed out regarding our carbon
emissions and the coal industry will have to adapt. It’s too early to
predict how successful the coal industry will be at adapting to new,
stringent laws, but its survival will depend on it.
Keenan is careful to point out that he’s not endorsing coal or saying
that everyone should buy it – he merely saw an investment opportunity
and seized it.
But what can’t be denied is that regardless of forthcoming
regulations, coal is still a very necessary and very-much-in-use
commodity. "Things like solar and wind are starting from such a
minuscule base, it’s going to be difficult for those technologies to
ramp up quickly. [They’re] farther down the road."
And while it may or may not be on the way out in this country, there
are still other countries in a period of growth that will keep it in
high demand. Take China and India, for example.
"Coal production has been ramped up significantly. Between 2003 and
2006, coal consumption increased in that four-year span as much as it
had in the 23 years before that."
On top of that, the United States is beginning to export more coal.
It’s cheaper, Keenan says, for a utility to buy coal in the United
States and have it shipped to Europe than it is to just buy it there.
The most heavily weighted components of the index are China Coal Energy Co. (based in Hong Kong, 8.1%), Consol Energy Inc. (CNX, 8.1%), and Bumi Resources (based in Indonesia, 8%). The United States is the most heavily represented country in the index, at 39.6%. Hong Kong is 24% and Indonesia is 11%. More breakdowns are available on the index’s fact sheet.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.