A Closer Look at the Waste Management ETF (EVX, RSG, SRCL, WM)

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July 27, 2012 10:52am NYSE:EVX

Eric Dutram: Although the U.S. market appears to be crumbling, there are still a variety of market segments that can be potential hits with investors over the long term. This could be especially true in some segments which have both cyclical and discretionary

characteristics, specifically the waste management industry.

No matter what is happening in the broader economy, trash will be produced and in vast quantities. This presents a steady opportunity for a variety of companies in order to manage this flow and dispose of it properly (The Comprehensive Guide to Consumer Staples ETFs).

However, there is also a discretionary aspect to the segment as well; as more is produced and consumed, more trash is invariably made, adding to the demand for those in the industry. Thus, waste management firms are also heavily correlated to growth levels despite their relatively stable nature otherwise.

The U.S waste industry is divided into two segments, namely hazardous waste and non-hazardous waste. Most hazardous waste results from various manufacturing processes and poses threats to public health or the environment. Non-hazardous waste is divided into several categories, including municipal solid waste and several kinds of industrial waste.

Management of both types plays a very important role in any economy as it involves removal of tons of goods in a time efficient manner that also keeps the product relatively segregated and safe from the general populace. Due to this, there are often significant barriers to entry, either in terms of switching costs, network effects, or regulatory hurdles, helping to keep the sector a solid long term play for patient investors (see more in the Zacks ETF Center).

Thanks to these trends, some investors are looking to push into this sector despite its relatively lackluster performance as a way to capture gains for the long term. For investors seeking to play this trend in ETF form, there is currently one solid choice that could make for an interesting pick, which we have highlighted below:

Market Vectors Environmental Services ETF (NYSEARCA:EVX)

Market Vectors Environmental Services ETF seeks to replicate the price and yield performance of the NYSE Arca Environmental Services Index.  The fund was initiated in October of 2006 and since then has managed to build assets under management of just $19 million (see Ten Biggest U.S. Equity Market ETFs).

The product holds a total of 21 securities in which Stericycle, Inc. (NASDAQ:SRCL), Republic Services, Inc. (NYSE:RSG) and Waste Management, Inc. (NYSE:WM) hold the top three positions. In terms of sector exposure, Commercial & Professional Services occupy the top position with 65.9% of investment while Capital Goods and Utilities take the second and third spots.

From market capitalization perspective, the fund tilts towards large caps. EVX charges an expense ratio of 55 basis points from the investor and currently has a Zacks ETF Rank of 3 or ‘Hold’ (Guide to the 25 Cheapest ETFs).  Meanwhile, performance has been lackluster, pacing the overall market and losing about 2.2% so far in 2012.

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Written By Eric Dutram From Zacks Investment Research

In 1978, Len Zacks discovered the power of earnings estimates revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank, a peerless stock rating system whose Strong Buy recommendation has an average return of 26% per year.

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