New ETF Hits Gold in Materials Sector

A U.S. Shortcoming

Part of the problem, of course, is that there are fewer mining stocks in the U.S. than in other countries, such as Canada, Australia and the U.K.

Despite being such a small portion of the market -- less than 3% of the S&P 500 -- the materials sector can be complicated. (We saw firsthand last summer -- in the wake of hurricanes Katrina and Rita -- how leveraged the chemical companies are to the price of oil.)

In addition, you don't need to be an expert in the sector to know that mining shares tend to be volatile and that picking the "wrong" name in the group can be very damaging to your portfolio.

As a consequnce, investors who until now relied solely on one of the earlier ETFs for exposure to the sector may very well have sat out the vast majority of the mining rallies of the last couple of years.

MXI, by having about one-third of its holdings in the mining group, clearly provides better diversification within the materials sector and is a more complete product.

Finally, there has been a lot of chatter on the Internet about there being too many ETFs, or that many of the ETFs are useless, and my contention all along has been that the "too many" contingent misses the point.

The future will bring a lot of new ETFs, and most of them will probably not have much utility, but I predict that 10% to 20% of them will bring something innovative and useful to the table, and MXI is an example of that.