Coal ETF: Dirty, Sexy Money

The Market Vectors Coal ETF(KOL Quote) has been one of the hottest ETFs in the second quarter. It is up 43.1% in just the past 13 weeks.

This relatively new ETF has only been trading since January. With top holdings that include Peabody Energy(BTU Quote), CONSOL Energy(CNX Quote), Arch Coal(ACI Quote) and Massey Energy Company(MEE Quote), the fund has prospered this year as the rest of the market has foundered.

Soaring energy costs have fueled the success of this fund and one market analyst sees the present supply vs. demand situation as being favorable to coal investors.

"With oil prices rising and demand for coal from China and India rising, the outlook for coal is very promising," says Phil Flynn, vice president and senior market analyst at Alaron Trading. "I think demand for coal is going to continue to remain very strong."

Although Flynn acknowledges the risk that environmental worries present to the industry, he sees a drive toward energy independence as an offsetting force.

"Concerns about global warming and pollution are among the biggest risks to the industry," he said. "Though I still think the outlook for coal is good as the U.S. makes a push to become less reliant upon foreign oil."

Frank Husic, chief investment officer of Husic Capital Management, has maintained a similarly positive sentiment toward the coal space for some time now, and continues to like this area of the market.

"It has been one of my favorite areas of the market for three years now," he says. "It's the short-term answer to our energy problem because it is something that we have a lot of. The U.S. is the Saudi Arabia of coal."