Investing in exchange-traded funds (ETFs) has become increasingly popular in recent years, as they provide investors with a low-cost and convenient way to gain exposure to a variety of asset classes. One such asset class is the materials sector, which encompasses companies involved in the production, processing, and distribution of raw materials, such as metals, chemicals, and forestry products. Materials ETFs offer investors an opportunity to tap into the growth potential of this essential sector, which is closely tied to the global economy’s infrastructure and manufacturing industries. The performance of materials ETFs can be influenced by a variety of factors, including commodity prices, supply and demand dynamics, and global economic conditions. Despite the potential volatility of the materials sector, investors may be attracted to the potential for long-term growth and diversification benefits. Furthermore, many materials ETFs offer exposure to companies with established track records of sustainable practices, making them an appealing option for socially responsible investors. In this article, we’ll explore some of the best materials ETFs to invest in, based on their potential for strong performance, diversification, and low fees. By considering a range of factors, investors can make informed decisions about how to gain exposure to this essential sector and potentially benefit from its long-term growth potential. What are the best materials ETFs?
1. Materials Select Sector SPDR Fund (XLB)
The Materials Select Sector SPDR Fund (XLB) is an exchange-traded fund that seeks to provide exposure to companies in the materials sector. It tracks the performance of the Materials Select Sector Index, which is made up of companies in the S&P 500 index that are involved in the production, extraction, or processing of raw materials such as metals, chemicals, and forestry products.
As of April 15th, 2023, the XLB ETF had total net assets of approximately $8.7 billion and contained 25 holdings. The top ten holdings and their percentage weightings in the ETF’s portfolio are shown in the table below:
| Holding | Percentage Weight |
|---|---|
| Linde plc | 19.22% |
| Dow Inc. | 10.27% |
| Ecolab Inc. | 7.62% |
| Air Products & Chemicals, Inc. | 7.61% |
| Sherwin-Williams Co. | 7.49% |
| DuPont de Nemours, Inc. | 6.51% |
| LyondellBasell Industries NV | 6.33% |
| Freeport-McMoRan Inc. | 6.03% |
| PPG Industries, Inc. | 5.33% |
| Praxair, Inc. | 5.24% |
The XLB ETF has a relatively low expense ratio of 0.12% and has generated strong returns for investors over the long term. Its performance over the past 5 years has been as follows:
| XLB ETF | |
|---|---|
| 1-Year | 27.59% |
| 3-Year | 12.75% |
| 5-Year | 12.17% |
| 10-Year | 10.87% |
| Since Inception (12/16/1998) | 8.52% |
Investors should keep in mind that past performance is not a guarantee of future results and that the value of an investment in the XLB ETF can fluctuate based on market conditions and other factors. One of the best materials ETFs.
2. Vanguard Materials ETF (VAW)
The Vanguard Materials ETF (VAW) is an exchange-traded fund that seeks to track the performance of the MSCI US Investable Market Materials 25/50 Index. This index is made up of companies in the materials sector that are publicly traded in the United States, including firms involved in the production, extraction, and processing of materials such as metals, chemicals, and paper products. One of the best materials ETFs.
As of April 15th, 2023, the VAW ETF had total net assets of approximately $5.1 billion and held 122 securities. The top ten holdings and their percentage weightings in the ETF’s portfolio are shown in the table below:
| Holding | Percentage Weight |
|---|---|
| Linde plc | 14.97% |
| Dow Inc. | 8.06% |
| Ecolab Inc. | 6.10% |
| Air Products & Chemicals Inc. | 5.71% |
| Sherwin-Williams Co. | 5.48% |
| DuPont de Nemours, Inc. | 4.77% |
| LyondellBasell Industries N.V. | 4.66% |
| Praxair Inc. | 3.91% |
| International Paper Co. | 3.48% |
| WestRock Co. | 3.10% |
The VAW ETF has a low expense ratio of 0.10% and has provided investors with strong long-term returns. Its performance over the past 5 years has been as follows:
| VAW ETF | |
|---|---|
| 1-Year | 26.92% |
| 3-Year | 12.38% |
| 5-Year | 11.84% |
| 10-Year | 10.08% |
| Since Inception (01/26/2004) | 9.41% |
It’s important to note that past performance is not a guarantee of future results and that the value of an investment in the VAW ETF can fluctuate based on market conditions and other factors. As with any investment, investors should conduct their own research and consult with a financial professional before making any investment decisions.
3. iShares Global Materials ETF (MXI)
The iShares Global Materials ETF (MXI) is an exchange-traded fund that seeks to track the investment results of the S&P Global 1200 Materials Sector Index. The index is designed to measure the performance of companies in the materials sector from around the world, including firms involved in the production, extraction, and processing of materials such as metals, chemicals, and forestry products.
As of April 15th, 2023, the MXI ETF had total net assets of approximately $1.2 billion and held 250 securities. The top ten holdings and their percentage weightings in the ETF’s portfolio are shown in the table below:
| Holding | Percentage Weight |
|---|---|
| Linde plc | 12.75% |
| BHP Group Ltd. | 6.37% |
| Rio Tinto plc | 4.92% |
| Rio Tinto Ltd. | 4.53% |
| Vale S.A. | 3.56% |
| Dow Inc. | 3.24% |
| BASF SE | 3.02% |
| Ecolab Inc. | 2.76% |
| ArcelorMittal SA | 2.56% |
| Mitsubishi Materials Corp. | 2.30% |
The MXI ETF has a relatively low expense ratio of 0.46% and has provided investors with solid returns over the long term. Its performance over the past 5 years has been as follows:
| MXI ETF | |
|---|---|
| 1-Year | 25.46% |
| 3-Year | 10.54% |
| 5-Year | 10.17% |
| 10-Year | 7.96% |
| Since Inception (06/28/2006) | 6.80% |
It’s important to remember that past performance is not indicative of future results and that the value of an investment in the MXI ETF can fluctuate based on market conditions and other factors. As with any investment, investors should conduct their own research and consult with a financial professional before making any investment decisions. One of the best materials ETFs.
4. Invesco DB Commodity Index Tracking Fund (DBC)
The Invesco DB Commodity Index Tracking Fund (DBC) is an exchange-traded fund that seeks to track the performance of the DBIQ Optimum Yield Diversified Commodity Index Excess Return, a rules-based index that is composed of a diversified basket of commodities futures contracts.
As of April 15th, 2023, the DBC ETF had total net assets of approximately $4.5 billion and held futures contracts on 14 different commodities, including crude oil, heating oil, gold, aluminum, wheat, and sugar. One of the best materials ETFs.
The following table shows the weightings of each commodity in the DBC ETF’s portfolio as of March 31st, 2023:
| Commodity | Weighting |
|---|---|
| Crude Oil | 37.98% |
| Heating Oil | 13.29% |
| Gold | 9.92% |
| Aluminum | 8.04% |
| Wheat | 6.46% |
| Sugar | 4.88% |
| Gasoline | 4.70% |
| Corn | 3.64% |
| Soybeans | 3.59% |
| Natural Gas | 2.96% |
| Copper | 2.78% |
| Zinc | 1.29% |
| Lead | 0.85% |
| Nickel | 0.83% |
The DBC ETF has an expense ratio of 0.85%, which is relatively high compared to other ETFs in the materials sector. Its performance over the past 5 years has been as follows:
| DBC ETF | |
|---|---|
| 1-Year | 26.98% |
| 3-Year | 4.39% |
| 5-Year | 4.31% |
| 10-Year | 0.65% |
| Since Inception (02/03/2006) | -0.45% |
It’s important to note that the DBC ETF is not solely invested in materials sector equities, but rather in a diversified basket of commodity futures contracts. Therefore, its performance can be influenced by a variety of factors such as supply and demand, global economic conditions, and geopolitical events. As with any investment, investors should conduct their own research and consult with a financial professional before making any investment decisions.
5. First Trust Materials AlphaDEX Fund (FXZ)
The First Trust Materials AlphaDEX Fund (FXZ) is an exchange-traded fund that seeks to track the performance of the StrataQuant® Materials Index, which is comprised of materials companies selected based on a variety of fundamental and quantitative factors, including price momentum, earnings growth, and valuation. One of the best materials ETFs.
As of April 15th, 2023, the FXZ ETF had total net assets of approximately $731 million and held 53 securities in its portfolio. The ETF’s top holdings were in the chemicals and metals & mining industries, with some of its largest holdings including Westlake Chemical Corporation, Freeport-McMoRan Inc., and Mosaic Company.
The following table shows the sector breakdown of the FXZ ETF’s holdings as of March 31st, 2023:
| Sector | Percentage of Portfolio |
|---|---|
| Chemicals | 56.47% |
| Metals & Mining | 24.91% |
| Containers & Packaging | 7.78% |
| Construction Materials | 4.06% |
| Aerospace & Defense | 2.59% |
| Electrical Components & Equipment | 1.94% |
| Other | 2.25% |
The FXZ ETF has an expense ratio of 0.63%, which is relatively low compared to other ETFs in the materials sector. Its performance over the past 5 years has been as follows:
| FXZ ETF | |
|---|---|
| 1-Year | 36.05% |
| 3-Year | 14.55% |
| 5-Year | 17.16% |
| 10-Year | 9.81% |
| Since Inception (05/08/2007) | 7.44% |
It’s important to note that the FXZ ETF’s methodology is based on a proprietary algorithm that selects and weights materials companies based on various factors, rather than a simple market-cap weighted approach. As such, its performance may differ significantly from other materials ETFs that use different weighting schemes. As with any investment, investors should conduct their own research and consult with a financial professional before making any investment decisions.
