Market Vectors Hard Assets Producers ETF Debuts

On September 3, the newest member of the Van Eck family of exchange-traded funds, Market Vectors-RVE Hard Assets Producers ETF (HAP), began trading on the AMEX. This fund--which levies a 0.65% expense ratio--is the first and only global hard assets ETF and is based on The Rogers-Van Eck Hard Assets Producers Index (^RVEI). That said, it's certainly not the first ETF that aims to capitalize on emerging-markets economies' voracious demand for commodities.

So, what makes this fund so different from the plethora of commodity-based ETFs already on the market?

Well, rather than weighting the fund by market cap (as many, if not most do), this fund is weighted by global consumption. What this means is that energy, while still on the high side, makes up less of the portfolio and agriculture receives a higher weight than in other commodity equity indexes. Also worth noting is that other commodity equity indexes typically do not include water and renewable energy (solar and wind), which this fund does. Sector exposures are as follows: Energy (40.3%), agriculture (30.5%), industrial metals (13.3%), precious metals (7.5%), paper & forest products (4.3%), and alternatives (4.1%).

Jim Rogers, the famed international investor who helped construct the index that the Market Vectors Hard Assets Producers ETF tracks, had this to say regarding the index's consumption based construction: "We are all consumers. Whether we're industrialists or simple people, we all consume [goods and services that are produced using real assets]. As consumers, we are more interested in what we consume than anything else. In the end, consumption is what makes the world go 'round. This index is designed to [represent] the cost of being alive around the world or the cost of doing business around the world."

Also, note that this ETF doesn't track the actual performance of the underlying commodities, but the performance of the companies engaged in the production and distribution of hard assets and related products and services. Bullish investors may view this as positive because during periods in which commodities experience price appreciation, this ETF should theoretically outperform the underlying commodities. For example, while the price of corn may increase rapidly due to increased demand or a shortfall in supply, the cost for a farmer to harvest his corn crop doesn't typically change dramatically from year to year. Thus, the farmer's bottom line grows at a much faster clip than the increase in the price of corn. Unfortunately, operating leverage cuts both ways and can lead to increased volatility.

We understand that some investors may prefer to tailor their own commodity exposure by using more focused commodity ETFs in unison (for example owning an energy ETF, alongside an agriculture ETF and a water-focused ETF). However, for some the Hard Assets Producers ETF might be a useful vehicle to help limit transaction costs due to its "one-stop shopping" exposure. Without question, commodities should have a place in every investor's portfolio in some shape or form. If for nothing else, commodity exposure can be viewed as a hedge against inflation.

So what are your first impressions of this new ETF? Does it have what it takes to take a bite out of the market shares of leading commodity-based ETFs like:  iShares S&P North American Natural Resources (IGE),  Materials Select Sector SPDR (XLB),  iShares Dow Jones US Basic Materials (IYM), iShares S&P Global Materials (MXI), or  Vanguard Materials ETF (VAW)? We'd love to hear what you think.

For more information about this new ETF, see the Fund Fact Sheet, Investment Case, and Prospectus.

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