Under The Hood: RVE Hard Assets Producers ETF

Risk appetite took quite the break on Friday as mixed earnings reports, a disappointing fourth-quarter GDP number and political tensions in Egypt have all had a hand in pressuring U.S. stocks, but we're going against the grain with today's under the hood candidate and going directly to a market segment that thrives on higher risk appetite: Hard assets. No, the Market Vectors RVE Hard Assets Producers ETF HAP did not enjoy a good day on Friday and no, this isn't the most heralded ETF out there, but it has returned over 30% in the past six months thanks in large part to soaring raw materials prices. In a way, it's odd that HAP doesn't trade more than barely over 50,000 shares per day, the average daily volume over the past three months. After all, the ETF focuses on a high-beta market segment and its constituents include some of the marquee commodities stocks. Still, the fund has attracted over $223 million in assets, so it's safe to say Van Eck has made a buck or two on HAP and sees no reason to pull the plug on it. If there's a downside to HAP beyond an expense ratio of 0.65%, it would be a lack of focus. This is an ETF with attention deficit disorder. It's almost as though HAP is trying to be all things to all investors seeking exposure to the materials sector. Exxon Mobil XOM, Potash POT, BHP Billiton BHP and Schlumberger SLB are among HAP's top holdings and energy and ag stocks make up 71% of the fund. Call us crazy, but with over 300 stocks in this ETF, there is little use for names such as Tyson Foods TSN and International Paper IP. Why not just cut those names loose and increase the exposure to oil and mining names? That's only a slight quibble and if we do see a legitimate market correction, say an S&P 500 retreat to 1,260, HAP would be an excellent buy on the dips candidate, particularly for the investor that embraces high beta fare and cannot make up his mind about how to express that sentiment.