Van Eck Global's New ETFs: Steel and Environmental Services

I received the latest press release form Van Eck Global. Earlier this year, they entered into the ETF market with their first offering – a gold producer ETF (ticker: GDX). As of September 30, 2006 it has over $250 million in assets and averages over 500,000 shares traded per day. It’s even option eligible. We maintain gold exposure through XGD, an iShare ETF domiciled in Canada giving exposure to stocks in the TSX Gold Subindex. Basically, this would be Canada’s counterpart to GDX. This is complemented with GLD. We’re holding no more than 5% in these gold related positions right now and don’t plan on touching these.

Some news on two new ETFs from Van Eck Global from today’s press release:

Today, we are launching two new unique ETFs, one on Environmental Services and another on Steel shares. Both are based on indices developed and calculated by the American Stock Exchange.

Market Vectors Environmental Services ETF (ticker: EVX) is the only way we know of for investors to gain exposure through an ETF or mutual fund to the fast-growing environmental services industry. This ETF seeks to track, before fees and expenses, the performance and yield of the Amex Environmental Services Index [AXENV].

Market Vectors Steel ETF (ticker: SLX) gives investors a unique and important way to focus on steel, an industry that is fundamental to consumer durables, capital spending and construction and one undergoing significant change. SLX is the only ETF or mutual fund that we know of that investors can use to gain exposure to the steel industry. This ETF seeks to track, before fees and expenses, the performance and yield of the Amex Steel Index [STEEL].

More information on Van Eck and their “Market Vector” family of ETFs can be found at on their website.

With regard to EVX, I think about how it might play along with our clients’ positions in PBW (PowerShares WilderHill Alternative Energy ETF) which I have discussed in the past here and here. PBW casts a fairly wide net. It has utility companies that are relatively clean in terms of using hydroelectric power versus the burning of fossil fuels as one example. It also has significant “high tech” type exposure with companies in the clean energy industry. In fact, according to the PowerShares website, IT has the largest sector weight in PBW with 37.26%. For anyone interested in doing some “comparison shopping”, here’s the list of constituents in the Amex Environmental Services Index [AXENV) picked right off the AMEX website:

Amex Environmental Services Index [AXENV]

"Constituents as of September 29, 2006"

Ticker Component Name Shares

(ARS) Aleris International Inc. " 112,920 "

(AW) Allied Waste Industries Inc. " 523,358 "

(CCC) Calgon Carbon Corp. " 801,254 "

(CLHB) Clean Harbors Inc. " 133,699 "

(CVA) Covanta Holding Corp. " 271,936 "

(CWST) Casella Waste Systems Inc. " 312,291 "

(DAR) Darling International Inc. " 1,411,638 "

(ECOL) American Ecology Corp. " 298,630 "

(FTEK) Fuel-Tech N.V. " 237,863 "

(LAYN) Layne Christensen Co. " 196,169 "

(MTLM) Metal Management Inc. " 212,749 "

(NLC) Nalco Holding Co. " 304,219 "

(NR) Newpark Resources Inc. " 1,069,342 "

(RSG) Republic Services Inc. " 433,275 "

(RTK) Rentech Inc. " 1,205,275 "

(SGR) Shaw Group Inc. " 234,497 "

(SRCL) Stericycle Inc. " 83,439 "

(SYGR) Synagro Technologies Inc. " 842,800 "

(SZE) SUEZ France " 383,091 "

(TTEK) Tetra Tech Inc. " 330,558 "

(VE) Veolia Environnement " 286,354 "

(WCN) Waste Connections Inc. " 149,905 "

(WMI) Waste Management Inc. " 475,926 "

(WSII) Waste Services Inc. " 370,612 "

Just below this list on the same page, AMEX gives daily price data going back to March 30, 2001 for all you backtesters.

For those of you more interested in the Steel ETF, here’s the low down on the Amex Steel Index (STEEL) from the same source:

Amex Steel Index [STEEL]

"Constituents as of September 29, 2006"

Ticker Component Name Shares

(AKS) AK Steel Holding Corp. " 176,054,206 "

(ATI) Allegheny Technologies Inc. " 161,006,988 "

(CAS) A.M. Castle & Co. " 26,503,386 "

(CGA) Corus Group PLC " 797,929,419 "

(CHAP) Chaparral Steel Co. " 74,220,357 "

(CLF) Cleveland-Cliffs Inc. " 67,012,665 "

(CMC) Commercial Metals Co. " 193,332,833 "

(CRS) Carpenter Technology Corp. " 40,811,599 "

(FSTR) L.B. Foster Co. " 16,795,555 "

(GGB) Gerdau S.A. " 690,673,048 "

(GNA) Gerdau AmeriSteel Corp. " 488,139,610 "

(IPS) IPSCO Inc. " 75,477,624 "

(LSS) Lone Star Technologies Inc. " 49,212,576 "

(MSB) Mesabi Trust " 20,986,446 "

(MT) Mittal Steel Co. N.V. " 580,505,687 "

(MTL) Mechel AOA " 221,952,459 "

(MTLM) Metal Management Inc. " 43,028,612 "

(NSS) NS Group Inc. " 36,217,615 "

(NUE) NuCor Corp. " 258,252,205 "

(NX) Quanex Corp. " 59,128,351 "

(OS) Oregon Steel Mills Inc. " 57,282,440 "

(PKX) POSCO " 264,141,742 "

(RIO) Companhia Vale do Rio Doce " 1,905,989,847 "

(ROCK) Gibraltar Industries Inc. " 47,643,391 "

(RS) Reliance Steel & Aluminum Co. " 120,668,864 "

(RTP) Rio Tinto PLC " 213,201,208 "

(RYI) Ryerson Inc. " 42,017,680 "

(SCHN) Schnitzer Steel Industries Inc. " 49,162,989 "

(SID) Companhia Siderurgica Nacional " 416,449,219 "

(SIM) Grupo Simec S.A. de C.V. " 224,588,561 "

(STLD) Steel Dynamics Inc. " 80,868,198 "

(STTX) Steel Technologies Inc. " 20,871,276 "

(TKR) Timken Co. " 150,337,812 "

(TX) TERNIUM S.A. " 320,673,531 "

(USAP) Universal Stainless & Alloy Products Inc. " 10,298,075 "

(WOR) Worthington Industries Inc. " 141,868,054 "

(WPSC) Wheeling-Pittsburgh Corp. " 23,529,773 "

(X) United States Steel Corp. " 199,724,908 "

(ZEUS) Olympic Steel Inc. " 16,680,385 "

I see the Steel ETF as a potential building block for an infrastructure sub-portfolio. Thus far, I have focused on closed end funds from Macquarie [(MIC), (MFD), (MGU), etc.] all traded on the NYSE. Stock selection makes sense here as well with positions such as CEMEX (CX) and Caterpillar (CAT). It’s amazing how this commodity plays into so many other asset classes. Another case aside from infrastructure would be alternative energy. I’ve heard from wind farm developers that one of their biggest costs is the price of steel. Another correlation play tying the commodity complex with alternative energy.

If you’re looking for the link that leads you to the above data, here it is.

Some further interesting notes about the composition of the two underlying indices from AMEX. This is from an October 3rd press release from AMEX found on PRNewsire:

The Amex Steel Index is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the production of steel products or mining and processing of iron ore. The Amex Environmental Services Index is a modified equal-dollar-weighted index comprised of publicly traded companies that are engaged primarily in consumer waste disposal, removal and storage of industrial by-products and the management of associated resources.

If you read closely you’ll see that the Steel Index is market cap weighted. The Environmental Services index is equal dollar weighted. I would very much be interested to hear what Rob Arnott would have to say about this. He’s the first person I heard discussing the benefits of non-market cap weighted exposure with first the concept of equal weighting and then the concept of fundamental indexation.

From the same press release, the next paragraph states:

The Amex Steel Index includes common stocks or American Depositary Receipts (ADRs) of selected companies with market capitalizations greater than $100 million that have an average daily volume of at least $1 million over the past three months. The Amex Environmental Services Index includes common stocks or ADRs of selected companies with market capitalizations greater than $100 million, three-month trading price greater than $3.00, and three-month daily average traded value greater than $1 million.

It’s fairly clear that there are not a lot of steel companies that can be put into the Amex Steel Index. However, the environmental services is certainly an area for decent long term growth. I would expect to see hundreds if not thousands of potential stocks that could be in this index now and in the not too distant future. Keeping a $3.00 minimum average price makes sense if not simply to keep the cost of running this ETF reasonable.

I love these new ETFs breaking into new asset classes. Keep ‘em coming.

Comments

[CharlieStromeyer Jr]

Van Eck is incorrect in stating that there is no mutual fund for environmental services. Since February 2005, I have had clients long waste management via the Fidelity Select Environmental Services Fund (ticker FSLEX).

Note that EVX mainly contains companies involved with waste management and that street analysts are still bullish on this sector despite the run up in share prices (e.g. maybe strength in commercial construction will offset the ongoing weakness in housing). EVX already has a P/E ratio of about 33 but does include the potential of emerging technologies.

[CharlieStromeyer Jr]

Before buying either EVX or SLX, investors should consider that economist Nouriel Roubini is forecasting a recession in commercial construction:

www.rgemonitor.com/blo...