Courtesy of Benzinga.
If new ETFs are considered to be those funds that are less than a year old, than the Global X Aluminum ETF (NYSE: ALUM) fits the bill as a “new ETF.” It may seem like ages ago, but the Global X Aluminum ETF came to market on Jan. 4, 2011, marking the introduction of the first equity-based aluminum ETF. No rivals have followed.
To be sure, ALUM is actually a decent idea among sector funds. Aluminum’s status as an industrial metal makes it worth watching as a tell on the strength of the global economy and equities have traditionally been the best way to gain aluminum exposure.
To say ALUM has been a victim of bad timing is accurate. Aluminum prices on the London Metals Exchange were flirting with $1.30 a pound early this year. Today, they rest around 90 cents per pound. We all know the story: Europe, China and the U.S. have issues that are not conducive to soaring aluminum prices…for the moment.
The result is predictably ugly for ALUM. Heading into the start of trading today, ALUM was down about 40% on a year-to-date basis. Wednesday’s almost 6% gain helps, but the ETF has a long road ahead of it.
That’s obvious, but what isn’t readily apparent to the naked eye is there is opportunity with ALUM. Frankly, the ETF’s almost 17% allocation to Rio Tinto (NYSE: RIO) makes it worth a look. No other U.S.-listed ETF offers that much of a weight to the world’s third-largest mining company. Dow component Alcoa (NYSE: AA) is next with a weight of almost 10%.
So rather than sit around with Alcoa and weight for Rio to buy that company (a frequent rumor), a savvy investor can use ALUM to play that possibility while getting a no-expiration call option on a rebound in aluminum prices.
A move above $10 would mean ALUM has cracked a downtrend line. A move above $11 means significant horizontal resistance has been broken. After that, a run to $13 is possible. So there you have it. At below $10, so this unheralded ETF is chock full of upside potential. Roughly 30% worth.
Bull case: Simply put, global economies must bounce back. Rio making a move on Alcoa could spur further industry consolidation and that would be a boon for ALUM as well.
Bear case: None of the aforementioned scenarios come to fruition and ALUM slips below what looks like critical support at $8.
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