A Coal ETF Worth Considering

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July 5, 2009 12:54pm ETF BASIC NEWS NYSE:XLE

coal

“Coal stocks are generally more volatile than large oil companies. Adding more potential volatility to a portfolio during a bear market is probably a bad idea. Instead, investors should boost volatility after a big decline or as stocks rise.


The market might be at that point now,” Roger Nusbaum From TheStreet.com reports.

Nusbaum previously wrote an article and said he “compared the PowerShares Global Coal Portfolio to the Energy Select Sector SPDR Fund(XLE Quote), noting that the PowerShares fund would decline more in a down market. That trend played out, but the coal fund has since rebounded, soaring 69% this year as the SPDR fund rose 1.7%.”

“The reasoning behind this discrepancy is simple. The Energy Select Sector SPDR is heaviest in Exxon Mobil(XOM Quote) at 21% and Chevron(CVX Quote) at 14%. These are comfort stocks that offer steady performance late in the bull-market cycle and during bear phases. However, they’re less likely to lead a new bull market cycle because they’re more mature companies,” Nusbaum reports.

“PowerShares Global Coal Portfolio allocates 24% of its assets to stocks in China, 19% to Australia and even 8% to Indonesia. The U.S. is the largest country weighting with 33% of the fund.
The PowerShares fund is less concentrated than the SPDR portfolio. Five stocks in the PowerShares fund have weightings larger than 6% including China Shenhua Energy(CSUAY Quote), Cameco(CCJ Quote) and Peabody Energy(BTU Quote),” Nusbaum reports.

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