Alternative energy sources are a hot topic nowadays due to the high prices of oil and gas. It’s no different in the world of ETFs where investors are looking for alternative investment sources as well. Enter coal ETFs - alternative energy, alternative investment.
What’s So Hot About Coal ETFs?
The short answer is the Waxman-Markley Energy Bill that recently passed. This bill rewards the use of clean energy resources…like clean-coal. That hopefully will keep the demand for coal around for a long time as countries attack energy crises and look for clean energy sources.
The long answer is time. As with any stable commodity, investors want a product that will stand the test of time before including it their investment strategy. Stable investments like gold and coal, are sound ways to maintain some stability in a portfolio.
What’s the International Impact of Coal?
As more and more countries become “green-conscious”, alternative energy sources will need to be available. Coal will be no exception. Even now the demand for coal is high in countries like China and India, so a coal ETF can be used as an international investment to gain foreign exposure or even hedge some foreign risk.
For example if an emerging market or country depends on coal as its chief export (as opposed to Albania which you know is chrome…according to the Cheers song anyway), you can use a coal ETF to gain exposure to this region or hedge any foreign risk in this market.
Why Do I Want to Invest in a Coal ETF?
Besides the usual advantages that come with ETFs like the tax benefits, coal ETFs can be utilized in a portfolio a few different ways.
Are There Disadvantages to Coal ETFs?
There are disadvantages with any investment and coal ETFs are no exception. No asset is loss-proof. However, if you know the disadvantages of ETFs, the risks of your market, and conduct thorough research, you should come up with a sound strategy that works best for your portfolio.
For example, in the United States there is currently a coal surplus due to the fact that people are more energy conscious, the energy crisis, and the recession. So electricity usage is down. Therefore there is a low demand for coal from major power plants and the price of coal has decreased. Whether that creates a buying opportunity or is more of a bearish sign is up to the individual investor.
How Do I include Coal ETFs in My Portfolio?
If you are ready to get started with these ETFs, I suggest you watch some major Coal ETFs and see how the react to market conditions. Once you are confident in your analysis, only then is it time to put coal ETFs in your stocking – which is a good thing.
If you’re looking for more Energy ETFs, look no further than our List of Energy ETFs and ETNs.
