IPO Could Help Fuel a Coal ETF

The Market Vectors Coal ETF (KOL - commentary - Trade Now) may see a rebalance in the near future as Rio Tinto (RTP - commentary - Trade Now) prepares an IPO for its coal unit, Cloud Peak Energy. Cloud Peak, the third-largest U.S. coal producer, hopes to sell 30.6 million shares on Thursday. The firm will trade on the NYSE under the ticker CLD.

The decision to launch the IPO couldn't have come at a better time. With the U.S. returning to growth, investors including Warren Buffett have placed big bets on the future of coal as consumers increase demand for electricity.

Recently, the largest U.S. coal producer, Peabody Energy (BTU - commentary - Trade Now), lifted its 2009 earnings forecast. BTU is KOL's second-largest holding, making up almost 8.5% of the fund's assets.

If the IPO proves successful, Cloud Peak may also find a place among the top holdings. KOL holds a position on my ETF Action watch list.

Additionally, some of the largest Chinese coal companies saw a big boost on Monday as the largest snowstorm in a decade hit the nation.

Today, nearly 70% of KOL's index, the Stowe Coal Index, is made up of U.S. and Chinese coal companies.

Year to date through Nov. 16, KOL has gained 138%. As nations around the world continue on the road to recovery, and as the bite of winter looms, this fund is in a good position to further extend its year-long rally.

At the time of publication, Dion had no positions in stocks mentioned.

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Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.