Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the coal industry to thrive as our world keeps demanding more energy and new cleaner-coal technologies are developed, the Market Vectors Coal ETF (NYSE: KOL ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This coal ETF's expense ratio -- its annual fee -- is a reasonable 0.59%, which is higher than many ETFs, but far lower than the typical stock mutual fund.
This ETF has performed very well, but it's also very young, with just a few years on the books. It blew the S&P 500 away in 2009 and 2010, but it's lagging sharply behind so far this year with a big loss. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a relatively low turnover rate of 29%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Few of this ETF's components made strong contributions to its performance in 2011. Joy Global (Nasdaq: JOY ) gained 5%, selling the machinery needed for mining and posting solid revenue growth and strong returns on invested capital. Also auspicious is that miners such as Freeport-McMoRan Copper & Gold (NYSE: FCX ) , BHP Billiton, and Rio Tinto (NYSE: RIO ) are spending more on equipment.
Other companies added to the ETF's losses this year, but could have a more positive effect in the years to come. Patriot Coal (NYSE: PCX ) and Arch Coal (NYSE: ACI ) sank about 47% and 52%, respectively, partly due to falling coal prices and lackluster domestic demand. But demand persists abroad, so these companies' prospects remain strong. Walter Energy (NYSE: WLT ) , down 43%, specializes in metallurgical coal, which has been in high demand from China.
The big picture
Demand for coal isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Learn about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 stocks for your retirement portfolio.
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