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) at 21% and Chevron ( CVX) 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) 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.