The outperformance has come on the back of Fed’s rate cut signal. Lower rates have put pressure on the U.S. dollar that has made dollar-denominated materials cheap for foreign investors, raising demand for products that these companies sell. Additionally, as the sector is heavily dependent on interest rates for capital expenditures, lower rates are a boon.
Further, the heavy sell-off in the market last month, triggered by escalation in trade tension between United States and China, has made the sector’s valuation compelling. This has encouraged investors to buy at a bargain. However, the trade war continues to loom on the sector’s profitability given its heavy dependence on international trade.
Investors could play the recent strength in the sector with materials ETFs. Though some of the funds might have an unfavorable Zacks Rank #4 (Sell) or 5 (Strong Sell), these are surging the most this month.
This ETF tracks the Dorsey Wright Basic Materials Technical Leaders Index, giving investors exposure to 47 stocks that are showing relative strength (momentum). Chemicals dominates the fund’s returns at 70.5% while metals & mining accounts for 17.6% of the portfolio. The fund has amassed $57.9 million in its asset base while charges 60 bps in fees and expenses. Volume is paltry as it exchanges nearly 4,000 shares in hand a day.
This is the most popular material ETF that follows the Materials Select Sector Index. It manages about $4.1 billion in its asset base and trades in volumes as heavy as around 8.2 million shares. In total, the fund holds about 28 securities in its basket and charges 13 bps in fees per year from investors. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share while containers & packaging, and metals & mining round off the top three positions.
This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 50 stocks in its basket. It has AUM of $389.3 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 65,000 shares a day. The product is heavily skewed toward specialty chemical and industrial gases with 34.5% and 25.6% share, respectively, while commodity chemicals round off the top three.
This fund has amassed about $2 billion in its asset base and offers exposure to 119 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio, while volume is moderate at 176,000 shares. Specialty chemicals and industrial gases take the largest share at 34.4% and 16.6%, respectively, while commodity chemicals round off the next third spot.
This fund provides exposure to 118 materials stocks with AUM of $189.3 million. This is done by tracking the MSCI USA IMI Materials Index. Chemicals accounts for 66.9%, while containers & packaging, and metals & mining round off the next two spots with a double-digit exposure each. The ETF has 0.08% in expense ratio while volume is moderate at around 75,000 shares a day.
The Materials Select Sector SPDR ETF (XLB) was trading at $58.01 per share on Thursday afternoon, up $0.23 (+0.40%). Year-to-date, XLB has declined -3.80%, versus a 8.82% rise in the benchmark S&P 500 index during the same period.
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