NEW YORK ( TheStreet) - New exchange traded funds often seek to target investment trends. One of the hottest areas in recent years has been the materials sector.
U.S.-based investors know more about commodities than they did 10 years ago and just about every ETF provider have introduced funds that invest in commodity stocks or the materials themselves. Two new funds were introduced a few days ago: the First Trust ISE Global Copper Index Fund (CU) and the First Trust ISE Global Platinum Index Fund (PLTM).
Most of the existing materials funds are broad, with exposure to large miners such as Vale (VALE) and big agribusiness companies like Monsanto (MON). Van Eck also offers the Market Vector Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ).
The two First Trust ETFs are the first to specialize in metals other than gold. The trouble with focused funds is that it can be tough to find enough stocks to fill them. That appears to be the case with the Global Copper Index Fund. BHP Billiton (BHP) is the largest holding in the copper ETF but copper production at BHP is dwarfed by its production in coal and iron ore. Xstrata, the second-largest position, has five business segments and copper is just one. MMC Norilsk Nickel produces more nickel and palladium than copper. These companies mine a lot of copper, but the amount mined is not large relative to the size of the companies.The Global Copper ETF also includes companies like Freeport McMoRan Copper & Gold (FCX) and Southern Copper (PCU), which are purer plays. Given the heavy weightings of broad-line miners, it is possible that the Global Copper Index Fund will not capture a trend in which copper differentiates itself from other metals. The Global Platinum Index Fund is less likely to experience "style drift." The largest companies include Norilsk Nickel, Johnson Matthey and Eastern Platinum. Both funds are concentrated, with the copper fund having 27 holdings and the platinum fund having 25. Six stocks in the copper fund have weightings larger than 5% and the platinum fund has 10 stocks weighted at 5% or larger. Both funds are heavily weighted toward Canada. The platinum fund also has large exposures to South Africa and Australia. Between the two, the Global Platinum Index Fund offers more utility because it offers access to a space that wasn't previously accessible. Most of the large holdings in the copper fund feature prominently in other materials funds. However, the companies in the platinum fund are generally smaller. The platinum fund's median market cap is $775 million versus $2.6 billion for the copper fund, and it is likely you've never heard of most of the companies in the platinum fund.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV