Global X Rolls Out First-Ever Aluminum Industry ETF

On Wednesday, Jan. 5, Global X Funds rolled out its latest niche product, the Global X Aluminum ETF .

The new fund is the first-ever pure-play ETF devoted to companies that are primarily involved in the aluminum industry. Up to now, the only aluminum-themed exchange-traded product has been iPath Dow Jones-UBS Aluminum Total Return Sub-Index ETN (JJU), which is a thinly traded exchange-traded note that was launched in mid-2008 and that is intended to reflect the returns of an unleveraged investment in aluminum futures. As such, JJU solely holds futures contracts on aluminum and as a result does not aim to replicate the performance of a basket of companies that operate in the aluminum industry.

ALUM tracks a float-adjusted, cap-weighted index known as the Solactive Global Aluminum Index that as of Jan. 6 contained 22 companies, seven of which trade on major U.S. exchanges (several others trade over-the-counter in the United States as well as overseas). ALUM's five largest weightings as of Jan. 6 were  Rio Tinto (RIO), (13.6% of assets)  Alcoa , (10.5%),  Alumina  (AWC) (8%), Norsk Hydro (8%), and  Aluminum Corp.  (5%). Investors should take note that Rio Tinto is a diversified miner (with 60% of its earnings before interest and taxes coming from iron-ore mining), so investors should monitor this fund's holdings closely to be sure that they are truly getting aluminum-industry exposure from this ETF. At first glance, the fact that ALUM's top holding is not a pure-play aluminum-mining company is certainly cause for further investigation. However, the vast majority of its other holdings are primarily involved in the aluminum industry.

Like several other mining-focused funds, ALUM's prospectus allows the ETF provider to replicate only 80% of the underlying index at any given time. However, out of the gate, ALUM has become a full-replication ETF that holds very little cash.

It's probably not surprising that aluminum, a lightweight metal that is used in a wide range of applications including construction, packaging, vehicles, and even street lighting, is dependent on the broad macroeconomy. In addition, aluminum is a critical input in developing markets, including China. China has been both the largest producer and the biggest consumer of aluminum in recent years, and the Chinese automotive and aviation markets are poised for further strength. At the same time, the aluminum-production marketplace has been undergoing stiff competition from other large players and new entrants, particularly in the Middle East, Russia, and China. Even so, supply appears to have tightened. Meanwhile, on the demand side, aluminum prices have bounced back nicely since 2008 from what was the industry's second-worst downturn ever, showing particular strength in recent weeks.

Last May, Global X filed regulatory paperwork to launch the aluminum ETF at the same time that it sought Securities and Exchange Commission approval to roll out a variety of other ETFs. Some of the ETFs, such as  Global X Uranium ETF (URA) and  Global X Lithium ETF (LIT), subsequently have begun trading, while others, including a food ETF, a shipping ETF, a fishing ETF, and a waste-management ETF, remain in registration.