Materials
The materials sector includes 15 separate sub-industries, from fertilizers and specialty chemicals, to steel and forest products, to precious metals and minerals.
This sector can be hyper-sensitive to the global economic outlook, but the sub-industries in the sector can react very differently to the same economic news. For example, a slowdown in the world economy would certainly hurt steel production as countries ease back on infrastructure spending, but precious metals prices might perform quite well as central governments print more money to stimulate activity.
We are currently underweighting this sector as Chinese growth slows, Europe remains stuck in a seemingly-eternal recession, and we are skeptical that gold prices can maintain their historic highs.
This sector can be hyper-sensitive to the global economic outlook, but the sub-industries in the sector can react very differently to the same economic news. For example, a slowdown in the world economy would certainly hurt steel production as countries ease back on infrastructure spending, but precious metals prices might perform quite well as central governments print more money to stimulate activity.
We are currently underweighting this sector as Chinese growth slows, Europe remains stuck in a seemingly-eternal recession, and we are skeptical that gold prices can maintain their historic highs.
In positive sign for global economy, materials are surging back
(22 Jun 2020) Of the eleven broad areas in the market, the most forgotten tends to be the materials sector. Granted, just 3.33% of all S&P 500 companies operate within the 15 industries of the sector, but that doesn't mean it shouldn't be represented in your portfolio. The pandemic decimated the performance of most materials firms as demand dried up, and they weren't doing all that well before the incident hit. Suddenly, however, the group is surging back—and that may spell good news for the global economy. Since mid-March, the Materials Select Sector SPDR (XLB $56) has risen 48% (it hit a 52-week low of $37.69 on 16 Mar). Oil and copper are the two most obvious drivers of the rally, and those two areas tend to move in direct correlation to economic activity—as opposed to gold miners, for instance. So, what are some of the top component companies in the materials sector? Air Products & Chemicals (APD, chemicals), Sherwin-Williams (SHW, specialty chemicals), Vulcan Materials (VMC, building materials), and FMC Corp (FMC, agricultural inputs) are all top holdings. In addition to XLB, investors may want to consider the Fidelity MSCI Materials ETF (FMAT $30), or the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX $35).
(22 Jun 2020) Of the eleven broad areas in the market, the most forgotten tends to be the materials sector. Granted, just 3.33% of all S&P 500 companies operate within the 15 industries of the sector, but that doesn't mean it shouldn't be represented in your portfolio. The pandemic decimated the performance of most materials firms as demand dried up, and they weren't doing all that well before the incident hit. Suddenly, however, the group is surging back—and that may spell good news for the global economy. Since mid-March, the Materials Select Sector SPDR (XLB $56) has risen 48% (it hit a 52-week low of $37.69 on 16 Mar). Oil and copper are the two most obvious drivers of the rally, and those two areas tend to move in direct correlation to economic activity—as opposed to gold miners, for instance. So, what are some of the top component companies in the materials sector? Air Products & Chemicals (APD, chemicals), Sherwin-Williams (SHW, specialty chemicals), Vulcan Materials (VMC, building materials), and FMC Corp (FMC, agricultural inputs) are all top holdings. In addition to XLB, investors may want to consider the Fidelity MSCI Materials ETF (FMAT $30), or the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX $35).