Rohm & Haas, Dow Chemical Funds to Avoid

These ETFs have significant exposure to both companies, which are losing ground today on a jeopardized merger.
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As the funding that

Dow Chemical

(DOW) - Get Report

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 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

(IYM) - Get Report


Materials Select Sector SPDR Trust

(XLB) - Get Report


Vanguard Materials ETF

(VAW) - Get Report

. All three are rated C.


Rydex S&P Equal Weight Materials ETF

(RTM) - Get Report

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

(UYM) - Get Report

a rating of E+.

Two open-end funds heavily invested in this sector are the

ProFunds Basic Materials UltraSector ProFund

(BMPIX) - Get Report

, E-, and the

Fidelity Select Chemicals Portfolio

(FSCHX) - Get Report

, C+.

For more information, check out an

explanation of our ratings


Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, 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.