After nearly doubling to rank as one of 2016’s best-performing non-leveraged exchange traded funds, the VanEck Vectors Coal ETF (NYSEArca: KOL) is on another blistering pace this year. Actually, that pace has been particularly blistering in recent weeks as KOL is up 11.6% over the past month to bring its year-to-date gain to 18.3%.
KOL was boosted in significant fashion last year on expectations that President Donald Trump would create more coal-related jobs, but investors should approach that thesis with caution.
A centerpiece of Trump’s campaign was reaching out to coal miners, a strategy that helped Trump win nearly all the major coal-producing states with the exception of Illinois. Of course, any politician must make good on promises made to voters or risk being defeated in the next election. The 2020 presidential election is a long way off, but Trump needs to get coal miners back to work. Whether he can is another story.
“Like it or not, coal companies should get better treatment under the administration of President Trump, who was strongly pro-coal and anti-regulation during his election campaign,” reports Michael Brush for MarketWatch. “America still needs a lot of coal to produce the electricity it uses. I’d love it if power from the sun and wind could stand in. So far, though, renewable energy is too costly and fickle to serve as a reliable energy source.”
With U.S. demand for coal in question, producers may be forced to international markets, mainly emerging economies, such as China. Increased steel production could also help U.S. producers of metallurgical coal.
“China is helping U.S. coal producers in other ways. It recently cut coal production to try to boost domestic prices to help its coal companies make enough to pay off debt. China is clamping down on imports as part of this price-manipulation effort. But the production cut still increases demand for many of the companies listed below,” according to MarketWatch.
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KOL follows the MVIS Global Coal Index and holds 27 stocks. This is a global ETF with China being its largest geographic weight at 23.2% followed by the U.S. at 21.7%. Australia and Indonesia combine for over 27% of KOL’s weight. KOL’s top 10 holdings combine for almost 58% of the ETF’s weight.
Adding to the case for coal stocks and KOL is the fact that group is not expensive on valuation and some rebounding coal producers are now paying dividends and repurchasing their own shares, as MarketWatch notes.
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