In 2010, Global X launched a number of niche ETFs focusing on companies engaged in the extraction and refinement of various commodities, including lithium (LIT), uranium (URA), and silver (SIL). The New York -based issuer made the first 2011 addition to its suite of commodity ETFs on Wednesday, rolling out the first fund to offer pure play exposure to the aluminum industry. The Global X Aluminum ETF (ALUM) will seek to replicate the performance of the Solactive Global Aluminum Index, a benchmark that consists of companies that are active in some aspect of the aluminum industry, such as bauxite aluminum ore mining, production, or refinement.
“We are pleased to offer the Aluminum ETF, which follows in the footsteps of our other highly successful industrial metal ETF, the Global X Copper Miners ETF,” said Bruno del Ama, CEO of Global X Funds, in a press release. “Aluminum has seen tremendous price increases as a result of increased global demand, especially from China and India. Its invaluable properties to various industries make it essential for future economic growth.” Aluminum, once a precious metal more valuable than gold, is now widely used in a variety of industrial applications ranging from automobiles to construction to aviation. As such aluminum prices depend heavily on the health of the global economy; the metal plunged during the recent recession but has steadily reclaimed ground over the last year as prospects for the global economy have improved [see the Best ETF Performers Of 2010: Winners For Every ETFdb Category].
Not surprisingly, emerging markets now account for a substantial portion of global aluminum demand. As urbanization continues in China and other developing economies, demand for construction materials, automobiles, and consumer products has surged. With this trend expected to play out in the decades ahead, investors are becoming increasingly bullish on commodities. Despite sagging growth in much of the developed world, emerging markets have exhibited an insatiable appetite for raw materials as they rush to build and improve infrastructure and keep up with the demands of a growing middle class. Supplying developing economies with the resources they need to continue expansion has been quite profitable for the firms that extract the materials; as commodity prices have climbed higher, the profit margins of miners have improved considerably.
Commodity Boom Continues
ALUM becomes the 26th ETF in the Commodity Producers Equities ETFdb Category. In addition to several broad-based funds there are now ETFs offering exposure to companies that focus on a variety of precious and industrial metals, from gold and silver to copper and rare earth metals. Because the profitability of the underlying securities often moves in unison with the prevailing market price for the related commodities, the funds in this ETFdb Category often trade as leveraged plays on spot prices [see Precious Metal ETFs: Physical vs. Equity Exposure].
At launch the fund consists of 22 stocks, with the largest allocations going to Rio Tinto (15%) and Alcoa (10%). From a country perspective, ALUM’s holdings are diversified; the U.S. is the largest country, making up just over 20% of assets.
Prior to the launch of ALUM, the iPath Dow Jones-UBS Aluminum ETN (JJU) was the only exchange-traded product offering exposure to aluminum. JJU is linked to a futures-based index, whereas ALUM’s underlying holdings are stocks of companies engaged in the aluminum business. Achieving exposure to commodities through stocks of companies whose operations focus on natural resources has been an increasingly popular option, since this strategy avoids the potentially adverse impact of contango and invests in assets that have associated cash flows.
Late last year, ETF Securities introduced a physically-backed aluminum ETF on the London Stock Exchange; physical industrial metals ETFs could debut in the U.S. this year, though current plans focus on copper products for the time being [read The Definitive Guide To Copper ETFs].
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Disclosure: No positions at time of writing.