"Market Vectors RVE Hard Assets (ASE: HAP) is designed for one-stop shopping, with a portfolio spanning more than 320 companies from 40 different countries," notes Paul Tracy.
In The ETF Authority, he adds "The fund was launched in June, in the middle of a brutal sell-off in commodities. However, this pullback has created an attractive entry point, as I believe these sectors are still in the early stages of a secular, global bull market."
"Top billing in the ETF goes to the energy group, which represents just over 40% of assets. Most of that goes to integrated oil giants like Chevron, but shareholders will also have a stake in oil/gas drillers, producers, refiners, and equipment providers.
"The agriculture sector is also heavily weighted at 30%. Here, we have exposure to companies like Tyson Foods, as well as companies involved with bio-engineered seeds, fertilizers, heavy machinery, irrigation equipment and everything else needed to grow crops and maximize the yield of farmland.
"Next up we have precious and industrial metals, which take up about 20% of assets. Well-known gold/silver miners like Barrick Gold are included, alongside companies that dig up critical raw materials such as copper, aluminum, and iron ore.
"Finally, the remainder goes to Weyerhaeuser and other lumber producers, and to a lesser extent companies engaged in wind, solar and other alternative energies.
"Over the past five years (through the end of September), the Rogers/Van Eck Hard Assets Producers Index has posted an impressive cumulative gain of 176%. Of course, there is plenty of competition from other commodities funds, but I give the edge to HAP for several reasons.
"First, index components are weighted by global consumption patterns, not simple market capitalization. As a result, the fund's sector weightings are more evenly balanced; energy accounts for just 40% of assets, versus 80% for some other funds in this category.
"That also means that leviathans like ExxonMobil don't elbow out smaller companies, while booming firms with huge untapped potential such as Monsanto are given more emphasis.
"Furthermore, this is the only fund in its class that offers exposure to renewable forms of energy. You won't find wind power turbine maker Vestas Energy and solar module manufacturer First Solar in other hard asset funds. Finally, HAP invests in stocks, not volatile futures contracts like many commodity-focused funds
"As a value investor, it was hard for me to be overly enthusiastic about some commodity-related names last summer. But that has changed dramatically over the past few months.
"Just as valuations got ahead of themselves before, this downturn has probably gone overboard as well. Pricing in a global economic collapse, many of the fund's top holdings are trading at rock-bottom earnings multiples of five or less.
"And after seeing the massive destruction of wealth tied to credit default swaps and other paper assets, investors should place a premium on real, tangible assets like copper, trees and steel.
"These are things that the world needs in massive quantities -- we consumed $7.2 trillion worth of these basic building blocks last year, according to Van Eck.
"This is particularly true in industrializing countries like China, which is now the world's second-largest oil consumer and has a ravenous appetite for other hard assets.
"In fact, Jim Rogers, developer of the index, has pointed out that companies involved with commodities production represent more than 15% of the world's total economic output.
"And HAP is an ideal way to take part in a cyclical upswing that many analysts are projecting to last for another 10 to 15 years. Commodity prices are notoriously difficult to predict, and stocks in this sector could continue to face some economic headwinds -- so this volatile fund is not for the feint of heart.
"However, long-term investors can take solace in the fact that the world will always need food, energy, and raw materials. And the strikingly low valuations in this group are difficult to ignore."
