Red Hot Coal ETF Returns Not A Trump Trade

April 12, 2017

But you might notice that the actual performance of the VanEck fund has much less relation to the orange line as it does the white—the Australian Hard Coking Coal Index. That’s the super-high-quality coal that’s only used for making steel. It’s much more expensive, and very tiny proportion of the coal mined in the U.S. (hence Australia being the benchmark price). And lately?

The reason for the huge movements in coking coal has nothing to do with Trump, and everything to do with the weather. Cyclone Debbie just rolled through Queensland and completely disrupted the industry—a short-term hiccup that will likely come back down.

The previous ramp was mostly attributed to a surprise surge in demand from Chinese steel manufacturers last fall. But then, it doesn’t really look like these short-term spikes have had much impact on KOL either.

The Cow Problem

So what’s going on here? Well, KOL is the classic “buy the cow” commodity strategy, much like buying the VanEck Vectors Gold Miners ETF (GDX) to participate, sort of, in the price of gold.

The reality is that KOL, despite being the only real pure coal play on the U.S. ETF market, is “diverse.” Take its largest holding (at 9%, Teck Resources): While coal is an important part of its business, it actually only generates 44% of its revenue from coal. The rest comes from zinc, copper and other metals.

Or take KOL’s 8% holding of Aurizon, which is technically classified as a railroad company (although half its revenue is coal-related). And then the 7% holding United Tractor is a mix of manufacturer, leasing agent and contract player for the industry.

There’s no question these folks are all deeply involved with coal—that’s the point, after all. But their fortunes aren’t going to be swayed all that much by U.S. electric plants. They’re not very related to the U.S. at all.

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