Market Overview

Coal ETFs Plunge on Election Results

Coal ETFs Plunge on Election Results

Shares of the Market Vectors Coal ETF (NYSE: KOL), the largest of the two ETFs devoted to coal equities, plunged following the results of Tuesday's U.S. presidential election. On volume that is already well above triple the daily average, KOL is off nearly six percent with more than four hours still to go in Wednesday's session.

Some traders loaded up on KOL and its constituents in advance of the election, anticipating an upset of President Obama by Republican challenger Mitt Romney. Throughout his first four years in office, President Obama has been a vocal supporter of alternative energy. Romney sought to exploit that rhetoric to his advantage by framing himself as a strident supporter of coal as a fuel source.

Romney was seen as a coal bull in his effort to capture precious electoral votes in Pennsylvania, a major coal producing state. That gambit failed as the Keystone State was carried by the President, marking the fifth consecutive presidential election in which the state has backed the Democratic candidate.

Pre-Election Flaws KOL's Wednesday tumble extends a precipitous 2012 slide for the ETF. Traders punished KOL and marquee holdings such as Peabody Energy (NYSE: BTU) for much of this year as U.S. electric utilities turned to cheaper, cleaner natural gas over coal. With U.S. production of natural gas resting near all-time highs and supplies abundant, some coal bears saw long-term fundamental blow to coal equities and ETFs such as coal.

However, KOL put in a bottom just below $22 in September and steadily moved higher as polls showed a potentially tight race looming between Obama and Romney. In the month leading up to election, the ETF surged nearly nine percent.

Six of KOL's top-10 holdings, including its largest individual holdings, are non-U.S. companies, but that is not insulating the ETF from savage losses today. Shares of Consol Energy (NYSE: CNX) and Peabody, the largest U.S. coal producer, are off six percent and 9.5 percent, respectively. Those two stocks combine for over 14 percent of KOL's weight.

Mining equipment maker Joy Global (NYSE: JOY) and Walter Energy (NYSE: WLT), two names that have been rumored to be takeover targets, are off 3.8 percent and eight percent, respectively.

Rival Hammered While KOL is the coal ETF that garners the most attention, it does have a smaller rival in the form of the PowerShares Global Coal Portfolio (NASDAQ: PKOL). PKOL, which had just $10.1 million in assets under management at the start of trading today, is down 5.5 percent on volume that is nearly quadruple its daily average.

Like KOL, PKOL has several non-U.S. companies among its top-10 holdings, but Peabody, Consol, Alpha Natural Resources (NYSE: ANR) and Arch Coal (NYSE: ACI) combine for over 23 percent of the ETF's weight. Alpha Natural's 12 percent slide today means the stock is now off nearly 59 percent this year. Arch is down 13 percent, extending its year-to-date tumble to 48 percent.

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