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Here're the Top-Performing Material ETFs of Q1

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The first quarter of 2021 has mostly been decent for investors. This eventful quarter saw President Joe Biden’s swearing-in ceremony, the passage of the $1.9-trillion coronavirus relief package, the Reddit mania which completely surprised the Wall Street players, accelerated coronavirus vaccine distributions, reopening global economies along with rising 10-year Treasury Note yield and now, the tax hike worries.

Notably, the Dow Jones Industrial Average and the S&P 500 surged 7.8% and 5.8%, respectively, in first-quarter 2021. These indices witnessed their fourth straight positive quarter, per a CNBC article. Notably, cyclical sectors like industrial, financial, energy and consumer discretionary saw increased attention from investors over the last three months. Markedly, stocks within the cyclical sectors mostly behave in tandem with the prevalent economic conditions and when growth returns to normal levels, these sectors will automatically perform well. In fact, the S&P 500 Materials Index gained 8.6% in the first quarter.

The materials sector, which tends to be the most sensitive to global economic growth expectations, is gaining from the Fed’s dovish stance. 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.

The central bank has decided to maintain rates near zero until 2023, at least. Moreover, the central bank has raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year. The Fed has lifted its forecast for GDP growth to 6.5% in 2021 from 4.2% stated in December 2020. It has also raised the economic growth forecast from 3.2% to 3.3% for 2022. Moreover, growth is likely to cool down in 2023 to 2.2%. The Fed has predicted the longer-run growth measure at 2.3%.

Importantly, the Fed predicts unemployment to decline to 4.5% from 6.2% at present. This also compares favorably with the 5% forecast of December 2020. The unemployment levels for 2022 and 2023 are expected at 4.2% and 3.7%, respectively. Moreover, the Fed has predicted the longer-run growth measure at 4%.

The Fed’s projections for core inflation, as measured by personal consumption expenditures, are 2.2% for 2021, 2% for 2022 and 2.1% for 2023 along with the longer-run measure at 2%.

Encouragingly, Biden now aims at distribution of 200 million coronavirus vaccines within his first 100 days since joining office, per a CNBC article. Notably, at least 100 million coronavirus vaccinations have already been distributed since his inauguration.

Markedly, the unemployment levels are also improving, signaling that the economy is on the mend. The U.S. economy added 379,000 jobs in February 2021 after a revised rise of 166,000 in January, beating market expectations of an increase of 182,000, per verified sources.

Top-Performing Materials ETFs in Q1

Against this backdrop, let’s look at some material ETFs that have gained more than 11% in first-quarter 2021:

Invesco DWA Basic Materials Momentum ETF (PYZ - Free Report) — up 16.2% in Q1

This ETF is based on the Dorsey Wright Basic Materials Technical Leaders Index. This fund manages $139.6 million in its asset base. The ETF charges 60 basis points (bps) in fees per year from investors. In total, the fund holds about 38 securities in its basket.

First Trust Materials AlphaDEX ETF (FXZ - Free Report) — up 14.9%

This fund has amassed about $287.1 million in its asset base and offers exposure to 38 stocks. It seeks investment results that correspond generally to the price and yield, before fees and expenses, of the John Hancock Dimensional Materials Index. The ETF has 0.67% in expense ratio.

Invesco S&P 500 Equal Weight Materials ETF (RTM - Free Report) — up 12.3%

This fund provides exposure to 29 materials stocks, with AUM of $642 million. This is done by tracking the S&P 500 Equal Weight Materials Index. The ETF has 0.40% in expense ratio.

John Hancock Multifactor Materials ETF (JHMA - Free Report) — up 11.6%

The most popular material ETF follows the John Hancock Dimensional Materials Index. This fund manages $26 million in its asset base. The ETF charges 40 bps in fees per year from investors. In total, the fund holds about 47 securities in its basket.

iShares U.S. Basic Materials ETF (IYM - Free Report) — up 11.1%

This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 35 stocks in its basket. It has AUM of $623.3 million and charges 43 bps in fees and expenses (read: 4 Sector ETFs to Watch for Gains in Q2).

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