Market Vectors KOL ETF Review- Why you should Buy this Well Diversified Coal Investment

Market Vectors KOL ETF provides a good well diversified way to invest in Coal which is seeing a massive upsurge in demand driven by India and China.Note KOL is the only listed Coal ETF with Assets under Management (AUM) of nearly $900 million.It invests mostly in large cap companies and has a global scope.For investors looking for individual stocks here is a list  of US Solar Companies and Stocks and Indian Coal Stocks.China with around 3 Billion Tons of Coal Consumption and India with another 500 million Tons depend on King Coal for majority of their Energy Needs.While China generates 80% of its Electricity from Coal,India generates around 65%.While both countries have Huge Reserves and Production of Coal,their voracious demand is leading to surging imports.These Imports are being sourced from countries like Australia,Canada and USA which are going through Coal Mining Booms.Ports are getting congested as Infrastructure failed to meet the growing coal needs of India and China..The Biggest Advantages of Coal its Abundance and  Cheapness of Coal has made it the Fossil Fuel of Choice for Electricity Companies building power plants in developing countries despite its Drawbacks.This has led to a fight to secure Coal Supplies through vertical integration into buying up of coal mines,building ports and railways to transport Coal.Though India too faces some environmental opposition,massive ultra mega power plants with capacity of 4000 MW are getting built by new Indian private utilities.

KOL ETF

Market Vectors Coal ETF (KOL), which was launched in January 2008.

KOL Composition

KOL  is composed of 40 coal stocks  with the Top 25 Holdings make up 93% of the weight of the ETF.The ETF has  5 holdings with weight greater than 5% and has a well diversified mix of geograhies from USA,China and Indonesia.KOL largely has large cap stocks which make up more than 80% of the market cap with Mid Caps at 17% and Small Caps at a miniscule 3%.

1) Coal Sectors form 100% of the ETF Market Cap – The ETF has 5 sectors of Coal Mining and Produciton,Coal Equipment,Coal Technology,Coal Power Generation and Coal Transportation.Not surprisingly Coal Mining forms 68% of the Market Cap while Coal Mining Equipment forms 16%.This makes sense as KOL is mainly a play on Coal as a Mineral .

2) Top 5 Companies form 40% of the ETF– The Top 5 Constituents of the ETF namely Peabody,Consol Energy,China ShenHua,Joy Global and Bucyrus form 40% of the ETF’s value.2

3) Valuation of the KOL is currently quite high – The P/E and P/B of the ETF at31x ad 4x is quite high and reflects the current bull run in Coal Stocks.It may not be an oppurtune time to invest in this ETF at the present time,however its a good long term buy because Coal compared to Oil is still quite cheap.Beside KOL has given astounding returns in 2009 and 2010 vastly outperforming S&P and the Energy Index

Despite the high valuation,KOL gives a very good dividend yield of around 2%.

4) KOL Cost is cheap– The ETF is charging a total expense of 0.6% of the Weekly Average Assets which is quite cheap.It allows an investor to invest in top quality Global Coal Stocks from different countries at a relatively low cost which makes it an ideal Coal Play.

5) Stowe Coal Index – KOL follows the  The Stowe Coal Index which is a trademark of Stowe Global Indexes LLC and is licensed for use by Van Eck Associates Corporation in connection with Market Vectors Coal ETF (KOL).

Summary

KOL has managed to rectify most of its drawbacks since its inception when it held a large percentage of coal utilities like Huaneng and has become an ideal way to invest in Coal.Given the run up in commodity prices and the sharp surge in Coal prices,KOL valuation has increased quite dramatically rising more than 30% in 2010 after a 150% run up in 2009.This may not be the best time to get in,however the massive takeover fights and high valuation being given to Coal Assets may imply that KOL might not come down in price anytime soon.The growing energy needs of China and India make KOL one of the best ways to play this stock.It is an ideal investment tool for buying into higher Oil Prices as well.

Details of KOL Holdings

Source – http://www.vaneck.com/funds/KOL.aspx