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Top-Ranked Material ETFs to Park Your Money in This Year
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The materials sector has performed decently in the pandemic-stricken 2020. The S&P 500 Materials sector has gained 20.3% in the past year in comparison to the S&P 500’s 14.4% rise. In addition, the space is expected to remain strong as coronavirus vaccine rollout and introduction of another round of fiscal stimulus are pointing toward a faster recovering economy. Moreover, there are speculations about a bigger stimulus package after President-elect Joe Biden takes over the administration, per The Guardian article. Further, the Fed officials project the U.S. economy to grow at a rate of 4.2% in this year.
Going on, Marc Chaikin, CEO of Chaikin Analytics, has said that “the stock market is positioned for further gains in 2021 based on the twin pillars of coordinated fiscal and monetary policy from the U.S. Treasury and the Federal Reserve Board and a successful COVID vaccine rollout,” per a CNBC article.
The materials sector, which tends to be the most sensitive to global economic growth expectations, is gaining from the Fed’s dovish stance. Amid the pandemic, the central bank has pledged to hold rates at a near-zero level and will continue with the asset purchase program at the current rate until “substantial further progress” is made to reach a state of healthy inflation and maximum employment levels.
Notably, lower rates put pressure on the U.S. dollar that makes dollar-denominated materials cheaper for foreign investors. This in turn increases demand for products that these companies sell. Also, as the sector is highly dependent on interest rates for capital expenditures, lower rates act as a blessing. Considered to be a good safe-haven asset, U.S. dollars are expected to struggle on the bourses due to a rise in risk-on sentiments on the back of vaccine rollout, super-dovish Fed and introduction of another round of fiscal stimulus.
Furthermore, President Trump has finally signed the new coronavirus relief and government funding package worth $900 billion into law. This includes $600 stimulus checks to Americans, $300 per week in augmented federal unemployment insurance for unemployed individuals, around $300 billion in aid for small businesses, including $284 billion in forgivable Paycheck Protection Program (per the sources), and tens of billions of dollars across other provisions like rental assistance, vaccine distribution funds, COVID-19 testing and contact tracing efforts and broadband support.
Going on, the airline payroll support is part of more than $45 billion of transportation relief funds (per a CNBC article). Moreover, the fiscal support funds will direct $82 billion to K-12 and higher education, according to the same CNBC article.
The beginning of the inoculation process among people is highly driving optimism. Notably, the two frontrunners in the COVID-19 vaccine race, namely, Moderna (MRNA) and Pfizer/BioNTech, have received the emergency use authorization from the FDA for their coronavirus vaccines.
Material ETFs to Bet On
Against this backdrop, let’s look at some material ETFs. All these have a Zacks ETF Rank #2 (Buy), suggesting outperformance in the coming weeks.
This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 35 stocks in its basket. It has an AUM of $896.3 million and charges 43 basis points (bps) in fees and expenses. The product is heavily skewed toward specialty chemicals and industrial gases, with around 30% of the portfolio each (read: 5 Industry ETFs Defying Soft November Manufacturing Data).
The Materials Select Sector SPDR Fund (XLB - Free Report)
The most-popular material ETF follows the Materials Select Sector Index. This fund manages $5.19 billion in its asset base. The ETF charges 13 bps in fees per year from investors. In total, the fund holds about 28 securities in its basket. In terms of industrial exposure, chemicals dominate the portfolio with around 69% share, while containers & packaging, and metals & mining round off the top three positions (read: 5 Big ETF Stories of 2020 Worth Watching in 2021).
This fund has amassed about $2.25 billion in its asset base and offers exposure to 116 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio. Specialty chemicals and industrial gases take the largest share at 29.3% and 19.2%, respectively, while others offer single-digit exposure (read: Spate of Upbeat Q3 Earnings Fueling Material ETFs).
This fund provides exposure to 117 materials stocks, with an AUM of $248.5 million. This is done by tracking the MSCI USA IMI Materials 25/50 Index. Chemicals accounts for 64.5%, while containers & packaging, and metals & mining round off the next two spots with a double-digit exposure each. The ETF has 0.08% in expense ratio (see all materials ETFs here).
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Top-Ranked Material ETFs to Park Your Money in This Year
The materials sector has performed decently in the pandemic-stricken 2020. The S&P 500 Materials sector has gained 20.3% in the past year in comparison to the S&P 500’s 14.4% rise. In addition, the space is expected to remain strong as coronavirus vaccine rollout and introduction of another round of fiscal stimulus are pointing toward a faster recovering economy. Moreover, there are speculations about a bigger stimulus package after President-elect Joe Biden takes over the administration, per The Guardian article. Further, the Fed officials project the U.S. economy to grow at a rate of 4.2% in this year.
Going on, Marc Chaikin, CEO of Chaikin Analytics, has said that “the stock market is positioned for further gains in 2021 based on the twin pillars of coordinated fiscal and monetary policy from the U.S. Treasury and the Federal Reserve Board and a successful COVID vaccine rollout,” per a CNBC article.
The materials sector, which tends to be the most sensitive to global economic growth expectations, is gaining from the Fed’s dovish stance. Amid the pandemic, the central bank has pledged to hold rates at a near-zero level and will continue with the asset purchase program at the current rate until “substantial further progress” is made to reach a state of healthy inflation and maximum employment levels.
Notably, lower rates put pressure on the U.S. dollar that makes dollar-denominated materials cheaper for foreign investors. This in turn increases demand for products that these companies sell. Also, as the sector is highly dependent on interest rates for capital expenditures, lower rates act as a blessing. Considered to be a good safe-haven asset, U.S. dollars are expected to struggle on the bourses due to a rise in risk-on sentiments on the back of vaccine rollout, super-dovish Fed and introduction of another round of fiscal stimulus.
Furthermore, President Trump has finally signed the new coronavirus relief and government funding package worth $900 billion into law. This includes $600 stimulus checks to Americans, $300 per week in augmented federal unemployment insurance for unemployed individuals, around $300 billion in aid for small businesses, including $284 billion in forgivable Paycheck Protection Program (per the sources), and tens of billions of dollars across other provisions like rental assistance, vaccine distribution funds, COVID-19 testing and contact tracing efforts and broadband support.
Going on, the airline payroll support is part of more than $45 billion of transportation relief funds (per a CNBC article). Moreover, the fiscal support funds will direct $82 billion to K-12 and higher education, according to the same CNBC article.
The beginning of the inoculation process among people is highly driving optimism. Notably, the two frontrunners in the COVID-19 vaccine race, namely, Moderna (MRNA) and Pfizer/BioNTech, have received the emergency use authorization from the FDA for their coronavirus vaccines.
Material ETFs to Bet On
Against this backdrop, let’s look at some material ETFs. All these have a Zacks ETF Rank #2 (Buy), suggesting outperformance in the coming weeks.
iShares U.S. Basic Materials ETF (IYM - Free Report)
This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 35 stocks in its basket. It has an AUM of $896.3 million and charges 43 basis points (bps) in fees and expenses. The product is heavily skewed toward specialty chemicals and industrial gases, with around 30% of the portfolio each (read: 5 Industry ETFs Defying Soft November Manufacturing Data).
The Materials Select Sector SPDR Fund (XLB - Free Report)
The most-popular material ETF follows the Materials Select Sector Index. This fund manages $5.19 billion in its asset base. The ETF charges 13 bps in fees per year from investors. In total, the fund holds about 28 securities in its basket. In terms of industrial exposure, chemicals dominate the portfolio with around 69% share, while containers & packaging, and metals & mining round off the top three positions (read: 5 Big ETF Stories of 2020 Worth Watching in 2021).
Vanguard Materials ETF (VAW - Free Report)
This fund has amassed about $2.25 billion in its asset base and offers exposure to 116 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio. Specialty chemicals and industrial gases take the largest share at 29.3% and 19.2%, respectively, while others offer single-digit exposure (read: Spate of Upbeat Q3 Earnings Fueling Material ETFs).
Fidelity MSCI Materials Index ETF (FMAT - Free Report)
This fund provides exposure to 117 materials stocks, with an AUM of $248.5 million. This is done by tracking the MSCI USA IMI Materials 25/50 Index. Chemicals accounts for 64.5%, while containers & packaging, and metals & mining round off the next two spots with a double-digit exposure each. The ETF has 0.08% in expense ratio (see all materials ETFs here).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>