Market and product
New Aluminum ETF focus on mining companies
Global X launched an aluminum ETF focused on the mining companies, which allows investors to get exposure to the metal via a basket of equities. The ETF, which trades under the ticker symbol ALUM on the New York Stock Exchange, debuted Jan. 5 and traded about 40,000 shares in its first day. It tracks the Solactive Global Aluminum Index.
That index is designed to track the performance of the largest and most liquid companies globally active in some aspect of the aluminum industry. Top holdings include Rio Tinto and Alcoa.
The New York-based firm already has a copper-miner ETF which started trading about six to eight months ago, said Bruno del Ama, chief executive officer of Global X Funds. Given the strong performance of that ETF – which has about $100 million currently invested – an aluminum ETF was a logical choice. “We wanted do ETFs based on copper and aluminum … they are the two most important markets in base metals,” he said.
In addition to the copper-miner ETF, Global X has gold-miner and silver-miner ETFs, so doing another equity-based ETF for aluminum made sense. Equity-based ETFs allow correlation with metals prices, but also are influenced by the stock market. Further, equity-based ETFs can mean greater leverage than physically or derivatives-based ETFs since company earnings also come into play. The leverage can have a 1.8 to 2 times impact, del Ama said. That produces greater gains in a metals bull market, but can mean greater losses in bearish markets.
There are two more reasons Global X prefers to do an equity-based aluminum ETF rather than a physically based ETF – logistics and impact on industrial user.
“Physically based works well in precious metals. You can store them efficiently and with relatively little cost. It’s different in copper & aluminum. Storage cost is much higher and volumes are much bigger,” he said.
Secondly, he said, considering aluminum is used in industry a physically based contract would pull supply from the market and put in storage, taking it away from an end-user. “There are potential repercussions from tying up base metal in the physical market, so we don’t have that concern when we do the equities,” he said.
The aluminum ETF comes at a time when there are hopes the global economy is on the mend, which could increase demand for industrial use. Alex Ashby, research analyst, Global X Funds, said while the firm doesn’t seek to time launches to match cycles as they seek to have a long-term view. He added, however, there is “more enthusiasm” now with aluminum.
“We see strength in the base metals because of growth in emerging markets…. Even the recent developments (of potential growth) in the US in the economy there’s dynamic story there…. The supply of aluminum has been heavy, but that’s correcting,” Ashby said.
