NEW YORK (
iShares Dow Jones U.S. Materials
will be an ETF for traders to watch Monday and Tuesday, as
(AA) reports fourth-quarter earnings after the close.
of $0.06 per share for Alcoa and the company makes up 3.9% of IYM.
Alcoa, the biggest U.S. aluminum producer, has an important place among IYM's top holdings. Industrial metals and mining companies make up nearly 50% of this cap-weighted ETF. Investors can use IYM as both a short-term play on commodities and/or as a way to capture rapid growth in emerging markets.
As Alcoa unofficially kicks off earnings season today, investors may watch to see how the company performed and extrapolate to the broader economy. ETF investors can also see the returns of more narrowly-focused funds as a strong buy signal.
The recent performance of the
iPath Dow Jones-UBS Aluminum Subindex Total Return ETN
iPath Dow Jones-UBS Copper Subindex Total Return ETN
PowerShares DB Base Metals
, which has one-third each of aluminum, copper and zinc, is a bullish sign for these metals.
The price of the metals is one of the best signals for the economy because it sends a clearer signal of demand and supply, unfiltered by company-specific situations. Their prices indicate that, regardless of how Alcoa performs, the demand for industrial metals is up as manufacturing recovers in most parts of the world.
The aforementioned funds had impressive runs in 2009 as global markets went from apocalyptic to optimistic. Industrial metals bottomed in late 2008, setting up very favorable comparisons for the year: JJU gained 32.6%; JJC advanced 133.6%; and DBB climbed 88.9%.
Aluminum is leading the way higher in 2010, thanks it in part to the major snowstorms that hit China and delayed coal shipments, the main source of electrical power in the country.
quoted analysts who said that 0.5% of production was shuttered due to the storms. Given aluminum's underperformance relative to copper last year, I expect outperformance will continue for awhile longer, either through larger gains in aluminum or a correction in the price of copper.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion has no holdings in any of the equities mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.