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It's Time to Consider a Coal ETF

Last September, I said the new PowerShares Global Coal Portfolio (PKOL) was well-constructed but poorly timed in light of the bear market. Now, it might be a good time to revisit this exchange traded fund.

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.

In that first article, I compared the PowerShares Global Coal Portfolio to the Energy Select Sector SPDR Fund (XLE), 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 - Get Report) at 21% and Chevron (CVX - Get Report) 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.

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), Cameco (CCJ - Get Report) and Peabody Energy (BTU).

The PowerShares Global Coal Portfolio has only 10% of its holdings in coal stocks. Cameco, for example, is one of the world's largest Uranium companies and doesn't mine coal.
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CSUAY $6.75 0.00%
CCJ $12.51 0.00%
CVX $102.18 0.00%
XLE $67.50 0.00%
XOM $88.40 0.00%


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