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Material ETFs Gain on Q3 Earnings

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The basic materials sector has been in the spotlight this reporting cycle, About 41.4% of the sector’s total market capitalization has reported so far, with earnings up 26.2% on 10.9% revenue growth (read: Beat the Market with Pure Style ETFs).

Let’s dig into the earnings report of some of the well-known players in the sector:

Earnings in Focus

U.S. chemical giant DowDuPont (DWDP - Free Report) reported earnings per share of 74 cents, beating the Zacks Consensus Estimate by 3 cents and improving 20 cents from the year-ago quarter. Revenues rose 10% year over year to $20.12 billion but fell short of the estimated $20.30 billion.

PPG Industries (PPG - Free Report) topped both revenue and earnings estimates. Earnings per share of $1.45 came ahead of the Zacks Consensus Estimate by a couple of cents and revenues of $3.82 billion edged past the estimated $3.79 billion. On a year-over year basis, earnings were down 5% while revenues inched up 1%. On the other hand, Ecolab (ECL - Free Report) missed on both fronts. Earnings of $1.53 per share missed the Zacks Consensus Estimate by a couple of cents but rose 10.9% year over year. Revenues of $3.75 missed the estimated $3.77 billion but improved 5% from the year-ago quarter.

Industrial gas giant Air Products & Chemicals’ (APD - Free Report) earnings per share met the Zacks Consensus Estimate of $2.00 but lagged the same for revenues by $9 million. Earnings and revenues were up 14% and 4.4%, respectively, from the year-ago quarter.

Chemical maker LyondellBasell Industries (LYB - Free Report) came up with earnings of $2.96 per share, crushing the Zacks Consensus Estimate of $2.73. Revenues of $10.15 billion also exceeded the estimated $9.56 billion and grew 19.2% year over year (see: all the Materials ETFs here).
 

ETFs in Focus

Given the solid results, the material sector is up 2.5% (aggregate one-day stock market reaction to earnings releases) in response to earnings announcements. The positive trading has also pushed material ETFs higher over the past month. Below, we have highlighted those ETFs that have the top 10 holdings in these chemical titans. All these have a Zacks ETF Rank #3 (Hold), suggesting potential upside in the coming weeks. Below, we highlight them in details:

iShares U.S. Basic Materials ETF (IYM - Free Report)

This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 48 stocks in its basket. It has AUM of $470.4 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 83,000 shares a day. DowDuPont accounts for 21.7%, while other in-focus firms collectively make up for 21% of the assets. The product is heavily skewed toward diversified chemical and specialty chemical with around one-fourth of the portfolio each, while industrial gases, steel and commodity chemicals round off the top five.

Materials Select Sector SPDR (XLB - Free Report)

The most popular material ETF follows the Materials Select Sector Index. This fund manages about $4.3 billion in its asset base and trades in volumes as heavy as around 6.8 million. The ETF charges 13 bps in fees per year from investors. In total, the fund holds about 24 securities in its basket with DowDuPont making up for 19.3% of assets and the other in-focus four firms accounting for 19.1% share. In terms of industrial exposure, chemicals dominates the portfolio with 72.8% share, while containers & packaging, and metals & mining round off the top three positions (read: Is a Split Congress Good for the Market? ETFs in Focus).

Vanguard Materials ETF (VAW - Free Report)

This fund has amassed about $2.4 billion in its asset base and offers exposure to 120 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio, while volume is moderate at 101,000 shares. Here, DWDP holds 17.4% of assets while the other in-focus firms make up for a combined 16.3% share in the basket. Specialty chemicals and diversified chemical take the largest share at 25% and 20.5%, respectively, while others offer single-digit exposure each.

Fidelity MSCI Materials Index ETF (FMAT - Free Report)

This fund provides exposure to 118 materials stocks with AUM of $187.5 million. This is done by tracking the MSCI USA IMI Materials Index. DowDuPont makes up for 16.2% of assets while the other in-focus firms account for a combined 16.1% share. Chemicals accounts for 68.7%, while metals & mining, and container & packaging round off the next two spots with a double-digit exposure each. The ETF has 0.08% in expense ratio while volume is moderate at around 76,000 shares a day.

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