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Tuesday, July 6, 2010

Van Eck Plans First Ever Minor Metals ETF

      One section of the ETF world that has seen rapid expansion over the past year has been commodity producing equity ETFs. As investors have embraced ETFs as a means of establishing exposure to natural resource prices, many are beginning to realize that a host of commodities are thinly-traded, and therefore not suitable for “pure play” futures-based or physically-backed ETFs. Due to this, investors have seen the introduction of several funds offering exposure to commodities through stocks of companies engaged in their production and extraction, including ETFs that target copper miners, platinum mining companies, and even timber producers.

    One interesting new idea is being developed from Van Eck is to target companies that are engaged in the mining and production of so called ‘minor metals’ such as titanium and cobalt. While these metals are very thinly traded, they remain absolutely vital to a host of current and emerging technologies. In a filing with the SEC, Van Eck identifies several key technologies that utilize these commodities, including cellular phones, high performance batteries, flat screen televisions, and green energy technology such as wind, solar and geothermal. These metals are critical to the future of hybrid and electric cars, high-tech military applications including radar, missile guidance systems, navigation and night vision, and superconductors and fiber-optic communication systems.
    As these technologies have grown in importance to every day life, demand for these metals has surged, sending some prices sharply higher. Additionally, political and environmental issues are likely to be front-and-center for many of the equities in this fund, especially due to recent mining tax proposals out of Australia as well as increasing government scrutiny over hazardous industries such as mining. Even more crucially for the equities in the proposed fund is a recent plan from China that seeks to ban exports of certain minerals–a development that could be devastating since China produces just over 90% of the world’s rare Earth metals. However, it could help to spur more investment in the industry and send prices higher.

  The fund will track the Minor Metals Index and will hold 30 securities in total, and would be the thirtieth ETF from Van Eck. This new addition would also bring the total number of ETFs in the Commodity Producers Equities ETFdb Category up to 20 in total and offer investors exposure to a slice of the commodity market to which most do not currently have access. The expense ratio and symbol remain a mystery.

Disclosure: None

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