It's tied with energy for the smallest weight in the S&P 500 at 2.57%, but the oft-overlooked materials sector is on the rise.
The S&P 500 Materials Index gained almost 1.5% last week and enters Monday trading at its highest levels since late 2017. While there are plenty of indications that the sector is undervalued, that status isn't the only reason the group is being bid higher.
Depressed Treasury yields — which are stirring inflation speculation — and rising commodities are fueling renewed interest in the sector.
Here are three materials exchange traded funds for investors to consider in the search for more near-term upside.
Materials Select Sector SPDR (XLB)
The Materials Select Sector SPDR XLB is the largest ETF tracking this sector and is higher by 3.26% over the last month. XLB also enters Monday trading less than 1% below its 52-week high.
Owing to a shallow pool of large-cap candidates for this sector, XLB has just 28 holdings and is top-heavy, as Linde Plc LIN accounts for more than 18% of the fund's weight. XLB's top 10 holdings combine for almost two-thirds of the fund's weight.
Fun fact: XLB is either the best or second-best sector SPDR ETF in four months of the year.
VanEck Vectors Agribusiness ETF (MOO)
The VanEck Vectors Agribusiness ETF MOO is higher by almost 8% over the past month and is closing in on all-time highs. The ETF turns 13 years old at the end of this month.
MOO follows the “MVIS Global Agribusiness Index (MVMOOTR), which is intended to track the overall performance of companies involved in: (i) agri-chemicals, animal health and fertilizers, seeds and traits, from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations (including grain, oil palms, sugar cane, tobacco leafs, grapevines, etc.), and trading of agricultural products,” according to VanEck.
MOO is interesting in the current environment because agricultural commodities are historically inflation fighters, and an equity approach is a practical play on what's usually a volatile asset class.
Invesco S&P SmallCap Materials ETF (PSCM)
With small-cap stocks in rally mode, adventurous investors may want to give the Invesco S&P SmallCap Materials ETF PSCM a look. While PSCM is higher by 17% over the past month, making it the best-performing member of the trio highlighted here, it also has the furthest to run back to its 52-week high.
Home to 38 stocks, PSCM allocates almost 56% of its weight to chemicals manufacturers. A third of the fund's components are classified as value stocks.
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