With U.S. steel-sheet prices rising to a record $1,068 a ton this week, double year-ago levels, the basic materials funds dominated other sectors. Funds focusing specifically on steel production and distribution proved to be a bargain.
Excluding the worst-performing UltraShort Basic Materials ProShares (SMN) - Get Report that bets against the sector with 200% leverage, the average basic materials fund we track gained 2.38% for the five trading days ending Thursday, July 31. To be included in the group, funds had an aggregate of at least 25% of their holdings invested in the chemical, forest and paper products, iron and steel and mining industries.
One factor helping to propel the SPDR Metals & Mining ETF (XME) - Get Report to the top spot on our best-performing list is pricing power. Imports constrained by dollar weakness led to lower inventories and the ability to pass-through price increases.
For the one-year period through July 27, steel reinforcing bar is up 62.8%, carbon steel plate is up 86.7%, and hot rolled coil is up 113.9%.
The solid pricing environment helped put America's fourth-largest steel producer and SPDR holding AK Steel (AKS) - Get Report, up 38.50% for the period, on the auction block for a potential takeover offer.
Lakshmi Mittal, the head of ArcelorMittal (MT) - Get Report, up 15.60% this week, is predicting global demand growth for steel of 3% to 5% with China, India, and South America being the bright spots. He explains that world production will need to increase by as much as 75 million tons to keep pace. ArcelorMittal is the second largest holding of our second best performing fund, Market Vectors Steel Index Fund (SLX) - Get Report.
The bullish version of the worst performer ranks in third place on our best-performing list. The Ultra Basic Materials ProShares (UYM) - Get Report climbed 9.48% on leveraged 200% to the Dow Jones U.S. Basic Materials Index. Its holding of U.S. Steel (X) - Get Report popped 17.89% for the week on a doubling of 2nd quarter profits. Alcoa (AA) - Get Report also added 7.90% for the five trading days covered.
Source: Bloomberg & TheStreet.com Ratings
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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.