Coal ETF: Dirty, Sexy Money

Husic agrees with Flynn on the risk that environmental concerns pose to these stocks, and adds volatility as another theme to be mindful of.

"Coal has generally traded at somewhat of a discount because it is environmentally unpleasing," he says. "There has also been blood-curdling volatility in the coal stocks recently because they are a leader group right now."

Husic believes there is the potential for consolidation in the industry and says that investors could use the ETF to hedge their bets.

"One strategy would be to buy names that have looked like potential takeover targets such as James River Coal(JRCC Quote), National Coal(NCOC Quote) and International Coal Group(ICO Quote), and sell the ETF short as a hedge," he says. "Then you would be protected to some extent if the group were to collapse."

Drilling down on some of the coal ETF's top holdings, Ann Kohler, an Energy Analyst and Managing Director for Caris & Company, is particularly fond of companies with exposure to metallurgic coal, which is used in steel production.

"There has been a very strong level of demand on a global basis for metallurgic coal," she says. "The metallurgic-focused companies have strong fundamentals as well."

When it comes to individual names, Kohler has long been a fan of Massey Energy.

"It has been my top pick in the space for the past year and a half," she observes. "There is probably a little bit more stability on the metallurgic side of their business."

Shares of Massey have more than doubled, rising 157.1% year to date. In April, the company announced a 30% year-over-year improvement in its first-quarter earnings per share. Kohler maintains a buy rating on Massey.

Among the ETF's other holdings, Kohler has a hold rating on Peabody and an underperform rating on Arch Coal.

"I'm concerned that there could be a pullback in the price of oil, which could negatively impact Arch's steam coal business," she says.