Steel ETF Showdown: SLX vs. PSTL

In light of the continued global economic recovery, the Market Vectors Steel ETF (SLX - commentary - Trade Now) has gained nearly 86% year-to-date for the period ending Nov. 6. While SLX investors have watched this fund nearly double, investors holding another steel ETF, the PowerShares Global Steel ETF (PSTL - commentary - Trade Now), have only seen 51% gains.

PSTL, like SLX, tracks a basket of mainly large global firms involved in the storage and production of steel and iron ore. SLX's 27 holdings are representative of the NYSE Arca Steel Index, while PSTL's 57 underlying securities seek to follow the Nasdaq OMX Global Steel Index.

One striking difference between these two instruments is their geographic exposure. SLX has over 40% of its assets allocated to the U.S., while PSTL has only 12%. PSTL has a strong showing from Asia, with Japan and South Korea representing 21.5% and 11% of the fund, respectively. Asian firms represent only 6% of the SLX.

SLX is cheaper: It charges a 0.55% expense ratio; PSTL charges 0.75%.

Looking at specific holdings, both SLX and PSTL track big names such as Korea's Posco (PKX - commentary - Trade Now) and Europe's Arcelor Mittal (MT - commentary - Trade Now). However, Vale (VALE - commentary - Trade Now) and Rio Tinto (RTP - commentary - Trade Now), which are the top two holdings and account for more than 26% of assets in SLX, are not present in the PowerShares offering.

According to Morningstar (MORN - commentary - Trade Now), year-to-date, Vale has gained 127%, and Rio Tinto has gained 117%. The absence of these two firms has clearly weighed on PSTL's performance.

Recently, I wrote an article where I commented on the growing interest foreign steel producers have shown toward the United States. If this persists, ETF investors looking for exposure to the steel industry will continue to benefit from the top-heavy Western-focused holdings of SLX.

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

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

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.