As the funding that
was counting on to acquire
Rohm & Haas
disappeared Monday, shares of both
Dow Chemical and Rohm & Haas tumbled
Low oil prices and the potential for further commodity deflation prompted the Kuwait government to rethink the valuations on its upcoming investments and to walk away from its planned
joint venture with Dow Chemical
. Without the $9 billion Kuwaiti investment in Dow's plastics unit, Dow may not be able to raise the necessary funds to complete the deal.
Let's say that does happen. Transaction breakup fees may run as high as $600 to $750 million -- paid by either Dow Chemical or Rohm & Haas, depending of which side is forced to cancel the agreement. Further losses could have the secondary effect on the funds holding shares of these companies.
Six exchange-traded funds targeted at the materials sector have large exposures to both companies. Rated at E+ by TheStreet.com Ratings,
PowerShares FTSE RAFI Basic Materials Sector Portfolio
has the highest concentration of holdings of the stocks, with 14.9% of the fund invested in Dow and 5.0% in Rohm.
Other ETFs in this group include
iShares Dow Jones U.S. Basic Materials Sector Index Fund
Materials Select Sector SPDR Trust
Vanguard Materials ETF
. All three are rated C.
Rydex S&P Equal Weight Materials ETF
earned a D- rating with its structure of holding just as much Rohm & Haas and Dow Chemical, as a percentage of net investments, as any other holding in its portfolio. Adding high volatility from 200% leverage to sizable losses scored the
Ultra Basic Materials ProShares
a rating of E+.
Two open-end funds heavily invested in this sector are the
ProFunds Basic Materials UltraSector ProFund
, E-, and the
Fidelity Select Chemicals Portfolio
For more information, check out an
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.