Van Eck Global and commodities guru Jim Rogers have teamed up to launch a new broad-based commodity equities exchange-traded fund, the Market Vectors - RVE Hard Assets Producers ETF (AMEX: HAP), which could significantly reshape the natural resource investing landscape. The fund launched on September 3 and is being billed as the first global, pure-play, hard assets ETF. Hard assets refers to any company producing "stuff," such as oil drillers, gold miners, copper companies, alternative energy plays and more.

HAP is being positioned as a direct alternative to the iShares S&P North American Natural Resources Sector Index ETF (NYSEArca: IGE), the dominant natural resources ETF on the market today. Van Eck also sees it as a timely alternative to the commodity futures ETFs that have become so popular over the past year.

Commodity Futures Vs. Commodity Equities

The traditional means of investing in the commodities market is to buy commodity futures or a commodity futures-based fund. That gives you pure-play exposure to commodities and has become an extremely popular strategy in the ETF space, with funds like the PowerShares DB Commodity Index Tracking Fund (AMEX: DBC) attracting significant assets. Van Eck said there is more than $30 billion invested in funds linked to futures-based commodity indexes.

But commodity futures aren't the only way to tap into the commodity space; you can also buy shares of commodity-producing stocks. Commodity stocks track closer to traditional equities than commodity futures, but come with the additional risk and benefits of owning equities—i.e., companies can either make good or bad corporate decisions, either adding or subtracting value long term.

Van Eck thinks that its Hard Assets Producers Fund represents an important new step for commodity-focused ETFs.

"If we are five years into commodities being taken seriously as an asset class, and there have already been three versions of the futures-based commodity indexes, this is commodity index version 4.0," said Jan van Eck, principal at Van Eck Global.

Of course, the idea of investing in commodity stocks is not new. Van Eck says there are $16 billion invested in index funds linked to commodity stocks, including $1.9 billion in IGE.

But the company says IGE and other commodity equity funds have two major flaws: They focus solely on North American companies, and they dramatically overweight the Energy space. 

The Van Eck Hard Assets Producers Fund covers 321 companies in 40 countries and across six sectors. Forty-four percent of the fund is invested in stocks outside of the U.S. and Canada, and 60% is invested in non-energy companies. That compares to an 80% Energy weight in IGE, which is 100% allocated to North America.

Too Much Energy

Van Eck says that a majority of people still think of commodities stock investing as being synonymous with energy investing. "We think that it's a very outdated way to look at this market," the company said. 

The reason is that most commodity equity indexes use market capitalization to weight stocks. That tilts the indexes toward Energy, as there are quite a number of large, publicly traded energy companies like Exxon-Mobil and Chevron. Meanwhile, sectors like Agriculture (where most production is held by small family farms) have low net market capitalizations, and are underrepresented in funds like IGE. 

The Market Vectors - RVE Hard Assets Producers ETF uses a consumption-based approach to weight components, rather than market capitalization, leading to a more even weighting across sectors. The index has a 30% weighting to Agriculture, for instance, and a 21% weight in Metals.  

The index also takes a unique approach to coal, viewing it as an energy play as opposed to mining play. With 50% of worldwide electricity production tied to coal, Van Eck believes the new view of coal is an important update on the old way of viewing the commodity.

International

Another important distinction is that half of the top 10 names in the Van Eck-Rogers index are based outside the U.S., including Gazprom, Petrobras and PetroChina. "That is striking; those are names that should be in any global commodity index," Van Eck said.

Scott Burns, head of ETF analysis at Morningstar, said that "the global aspect is interesting and necessary." Brazilian mining company Vale has had higher profits than Microsoft recently, he noted; how many U.S. investors know that?

Will Investors Bite?

Burns believes, and Van Eck also suggests, that the index may also be well-positioned for the current market environment. "Even if commodity prices come down, lots of these companies are still in position to makes lots of money. Monsanto doesn't need corn to stay at record levels to make solid profits," Burns noted.

Still, whether investors will flock to the Van Eck fund is an open question. Commodity-producing stocks have been trending down recently; the HAP index fell more than 10% in July alone.

Van Eck says that it's not concerned with raising a ton of assets at the outset. "What many investors have told us is that they are receptive to a good benchmark for commodity stocks. Without a good, comprehensive benchmark, it is difficult for them to judge the commodities allocations they have implemented," the company said. "As much as assets under management, we are hoping to get mind-share as a preferred way to measure commodity stocks."

The fund has an expense ratio of 65 basis points, 50 basis points of which is the management fee.