Top 10 Materials Sector ETFs
NEW YORK (
) --
The materials sector represents the well-springs of industrial growth given the demand for raw materials found in base metals and even petroleum. Weak stocks in the sector equate well with the state of manufacturing conditions.
Another important factor to consider is ZIRP (global central bankers' low interest rate policies) which is designed to stimulate economic conditions. A secondary effect is to reflate perhaps declining prices from slack demand. Of course these policies may also get out of control leading to much higher prices and inflation. We see this most prominently in precious metals prices as many investors will use these as a hedge against declining currencies (the dollar primarily for U.S. investors) and the ongoing destruction of purchasing power.
There are currently nearly over fourteen ETFs oriented to the materials sector with more on the way. The following analysis features a fair representation of ETFs available. We believe from these investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize.
We're not ranking these ETFs favoring one over another so don't let the listing order mislead you. Although we may use some of these in ETF Digest portfolios it's not our intention to recommend one over another.
ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called "enhanced" indexes that attempt to achieve better performance through more active management of the index.
Where competitive issues exist and/or repetitive issues available at a fee cost saving we mention those as other choices. New issues are coming to market consistently (especially globally) and sometimes these issues will need to become more seasoned before they may be included at least in our listings.
For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.
We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we're sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.
Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity
Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity
Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity
Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average
We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.
Premium members to the ETF Digest
receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.
For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.
#10:
PowerShares
Small-Cap Materials ETF (PSCM)
PSCM
follows the S&P Small-Cap 600 Materials Index. This is of course a more unique approach following the small cap sector including just those companies within the materials sector. The fund was launched April 2010. The expense ratio is .29%. As a new fund AUM is only $4 million and average daily trading volume is less than 3K shares.
As of late January 2012 the annual dividend yield was 1.27% with a YTD return 11.90%. Through the volatile third quarter of 2011 the YTD return was -22.04%. The one year return was .78% which adequately reflects the high volatility.
Given the newness of the issue, low AUM, light trading volume and high volatility it may be worthwhile for investors to let this issue season some before jumping in. But, if investors feel the opportunity is worthwhile always enter a limit order.
Data as of First Quarter 2012
PSCM Top Ten Holdings & Weightings
Buckeye Technologies, Inc. (BKI): 5.59%
Balchem Corporation (BCPC): 5.53%
Schweitzer-Mauduit International, Inc. (SWM): 5.29%
H.B. Fuller Company (FUL): 5.25%
Eagle Materials, Inc. (EXP): 4.80%
PolyOne Corporation (POL): 4.59%
Calgon Carbon Corporation (CCC): 3.87%
AMCOL International Corporation (ACO): 3.81%
RTI International Metals, Inc. (RTI): 3.80
Clearwater Paper Corp (CLW): 3.73%
#9:
Emerging Markets Materials ETF (EMMT)
EMMT
tracks the MSCI Emerging Markets Materials Index which as time passes this should be an interesting and potentially profitable sector. The fund was launched in January 2010. The expense ratio is .69%. AUM equal $8 million and average daily trading volume is less than 2K shares.
As of late January 2012 the annual dividend yield was 3.33% and YTD return 13.46. Through the third quarter of a volatile 2011 the YTD was -30.45%. The one year return was -18.66%.
Data as of First Quarter 2012
EMMT Top Ten Holdings & Weightings
Vale S.A. ADR (VALE.P): 9.30%
Vale S.A. ADR (VALE): 8.49%
POSCO ADR (PKX): 8.40%
AngloGold Ashanti Limited (AULGF): 4.39%
Sociedad Quimica Y Minera De Chile SA ADR (SQM): 4.20%
Impala Platinum Holdings (IMP): 2.78%
MMC Norilsk Nickel ADR (NILSY): 2.70%
Gold Fields Ltd (GFI): 2.62%
China Steel Corporation ADR (CISXF): 2.56%
Grupo Mexico, S.A.B. de C.V. (GMEXICO B): 2.52%
#8:
International Materials ETF (IRV)
IRV
follows the S&P Developed Ex-U.S. BMI Materials Sector Index. The index captures both developed and emerging market issues with market capitalizations of at least $100 million.
The fund was launched in July 2008. The expense ratio is .50%. AUM equal $14 million and average daily trading volume is approximately 5K shares. As of late January 2012 the annual dividend yield was 2.36% and YTD return 12.36%. Hit hard by eurozone problems the YTD return through the third quarter of 2011 was -26.37%. The one year return was -13.26%
Data as of First Quarter 2012
IRV Top Ten Holdings & Weightings
BHP Billiton Limited (BHPLF): 8.56%
Rio Tinto PLC (RIO): 4.72%
BHP Billiton PLC (BLT): 4.71%
Basf SE (BFFAF): 4.28%
Anglo American PLC (AAL): 3.62%
Goldcorp, Inc.: 3.39%
Barrick Gold Corporation (ABX): 3.29%
Potash Corporation of Saskatchewan, Inc. (POT): 2.90%
Air Liquide (AI): 2.89%
Syngenta AG (SYENF): 2.53%
#7:
Equal Weight Materials ETF (RTM)
RTM
follows the S&P Equal Weight Index Materials. The index is unique with the equal weight feature which under a variety of circumstances can favor smaller cap issues over large. The fund was launched in November 2006. The expense ratio is .50%. AUM equal roughly $36M while average daily trading volume is 6.4K shares. As of late January 2012 the annual dividend yield was 1.40% and YTD return of 10.74%. As of the third quarter 2011 the YTD return was -20.75%. The one year return was -1.89%.
The equal weight issues from Rydex are quite well constructed giving investors a more balanced approach to the sector. Unfortunately the ownership for Rydex has change several times over the past few years restraining marketing efforts severely. New ownership will be more determined and effective in this regard in my opinion.
Data as of First Quarter 2012
RTM Top Ten Holdings & Weightings
CF Industries Holdings Inc (CF): 3.61%
The Dow Chemical Co (DOW): 3.56%
Eastman Chemical Company (EMN): 3.47%
Allegheny Technologies Inc (ATI): 3.46%
Mosaic Co (MOS): 3.42%
International Paper Co. (IP): 3.42%
Sherwin-Williams Company (SHW): 3.42%
Ecolab, Inc. (ECL): 3.42%
Owens-Illinois Inc (OI): 3.41%
E.I. du Pont de Nemours & Company (DD): 3.38%
#6:
PowerShares
Dynamic Basic Materials ETF (PYZ)
PYZ
tracks the Dynamic Basic Materials Sector Intellidex Index which is another enhanced index designed to outperform more static indexes and using quantitative measures to select constituents. The fund was launched October 2006. The expense ratio is .60%. AUM equal $55 million and average daily trading volume is around 16K shares.
As of late January 2012 the annual dividend yield was 1.070% and YTD return 12.71%. The YTD return through the third quarter of 2011 was -19.53%. The one year return was -.35%.
It's important for investors to remember an "enhanced" index may outperform its peers on the upside with the opposite effect on the downside.
Data as of First Quarter 2012
PYZ Top Ten Holdings & Weightings
LyondellBasell Industries NV (LYB): 3.92%
Cabot Corporation (CBT): 3.40%
Timken Company (TKR): 3.25%
Royal Gold, Inc. (RGLD): 3.23%
Schnitzer Steel Industries, Inc. A (SCHN): 3.20%
Westlake Chemical Corporation (WLK): 3.11%
Carpenter Technology Corporation (CRS): 3.07%
Reliance Steel and Aluminum (RS): 2.94%
Domtar Corp (UFS): 2.93%
CF Industries Holdings Inc (CF): 2.88%
#5:
Materials AlphaDEX ETF (FXZ)
FXZ
follows the StrataQuant Materials Index which is an enhanced index which employs the AlphaDEX stock selection methodology making the index more active. The fund was launched in May 2007. The expense ratio is .70%. AUM equal $135 million and average daily trading volume is 112K shares. As of late January 2012 the annual dividend yield is .35% and YTD return 12.20%. Through the third quarter of 2011 the YTD return was -20.24%. The one year return was -2.75%.
It's important for investors to remember an "enhanced" index may outperform its peers on the upside with the opposite effect on the downside.
Data as of First Quarter 2012
FXZ Top Ten Holdings & Weightings
LyondellBasell Industries NV (LYB): 3.92%
Cabot Corporation (CBT): 3.40%
Timken Company (TKR): 3.25%
Royal Gold, Inc. (RGLD): 3.23%
Schnitzer Steel Industries, Inc. A (SCHN): 3.20%
Westlake Chemical Corporation (WLK): 3.11%
Carpenter Technology Corporation (CRS): 3.07%
Reliance Steel and Aluminum (RS): 2.94%
Domtar Corp (UFS): 2.93%
CF Industries Holdings Inc (CF): 2.88%
#4:
Global Materials ETF (MXI)
MXI
follows the S&P Global Materials Index. The fund was launched in September 2006. The expense ratio is .48%. AUM is $528 million and average daily trading volume is nearly 69K shares.
As of late January 2012 the annual dividend yield was 2.22% and YTD return 11.98%. The one year return was -10.14%.
Data as of First Quarter 2012
MXI Top Ten Holdings & Weightings
BHP Billiton Limited (BHPLF): 6.92%
Rio Tinto PLC (RIO): 4.29%
Basf SE (BFFAF): 3.93%
BHP Billiton PLC (BLT): 3.77%
Anglo American PLC (AAL): 2.99%
Barrick Gold Corporation (ABX): 2.77%
Vale S.A. ADR (VALE.P): 2.65%
E.I. du Pont de Nemours & Company (DD): 2.59%
Monsanto Company (MON): 2.29%
Goldcorp, Inc.: 2.20%
#3:
Materials ETF (VAW)
VAW
follows the MSCI US Investable Market Materials 25/50 Index consists of wide range of constituents from small, mid to large cap securities within the overall materials sector. It was launched in January 2004. The expense ratio is .19%. AUM equal $592 million and average daily trading volume is 69K shares.
As of late January 2012 the annual dividend yield was 2.16%% and YTD return 11.21%. The previous quarter return in 2011 was a sharp down -19.55%. The one year return was -.40%.
Data as of First Quarter 2012
VAW Top Ten Holdings & Weightings
E.I. du Pont de Nemours & Company (DD): 7.66%
Monsanto Company (MON): 6.64%
Newmont Mining Corporation (NEM): 6.41%
Freeport-McMoRan Copper & Gold B (FCX): 5.95%
Praxair, Inc. (PX): 5.86%
The Dow Chemical Co (DOW): 5.45%
Air Products & Chemicals Inc (APD): 3.34%
Mosaic Co (MOS): 3.09%
Ecolab, Inc. (ECL): 2.34%
PPG Industries, Inc. (PPG): 2.31%
#2:
DJ Basic Materials ETF (IYM)
IYM
follows the Dow Jones U.S. Basic Materials Index. The fund was launched in June 2006. The expense ratio is .48%. AUM is $625 million and average daily trading volume is 361K shares. As of late January 2012 the annual dividend yield is 2.22% and YTD return 10.82%.
Through the third quarter of 2011 the YTD return was -24.40% once again demonstrating the sharp turnaround as with XLB. The one year return was -6.12%.
Data as of First Quarter 2012
IYM Top Ten Holdings & Weightings
E.I. du Pont de Nemours & Company (DD): 9.50%
Freeport-McMoRan Copper & Gold B (FCX): 7.70%
The Dow Chemical Co (DOW): 7.51%
Praxair, Inc. (PX): 7.22%
Newmont Mining Corporation (NEM): 6.45%
Air Products & Chemicals Inc (APD): 3.76%
Ecolab, Inc. (ECL): 3.48%
Mosaic Co (MOS): 3.43%
PPG Industries, Inc. (PPG): 2.87%
International Paper Co. (IP): 2.66%
#1:
SPDR
Materials Sector ETF (XLB)
XLB
follows the Materials Select Sector Index. The fund was launched in December 1998. The expense ratio is .20%. AUM (Assets under Management) equal $2 billion and average daily trading volume is over 11.6M shares. As of late January 2012 the annual dividend yield is 2.20% and YTD return was 10.84%.
Through the third quarter of 2011 the return was -21.27% which emphasizes the dramatic turnaround January brought to the sector especially given the Fed's ZIRP continuation. The one year return was -2.90%. There are leveraged inverse and long ETFs available for hedging or speculation from ProShares and Direxion Shares.
Data as of First Quarter 2012
XLB Top Ten Holdings & Weightings
E.I. du Pont de Nemours & Company (DD): 10.64%
Monsanto Company (MON): 9.44%
Freeport-McMoRan Copper & Gold B (FCX): 8.77%
Praxair, Inc. (PX): 8.06%
Newmont Mining Corporation (NEM): 7.47%
The Dow Chemical Co (DOW): 5.03%
Ecolab, Inc. (ECL): 4.55%
Air Products & Chemicals Inc (APD): 4.51%
Mosaic Co (MOS): 3.89%
International Paper Co. (IP): 3.40%
It's been a wild year for the materials sector overall. Lower economic growth stunts demand while ZIRP inflates prices for stocks (stocks can inflate too!) and related commodities. Currently there is quite a duel between ZIRP, which brings hope for better future economic conditions, and poor current economic conditions globally.
It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.
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The ETF Digest has no current positions in the featured ETFs.
(Source for data is from ETF sponsors and various ETF data providers)
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
Dave Fry is founder and publisher of
, Dave's Daily blog and the best-selling book author of
Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management
, published by Wiley Finance in 2008. A detailed bio is here:
Dave Fry.
