How to invest in materials.
It’s hard to be a materials stock. Whether you mine for gold, produce aluminum or manage timberlands, your fortunes are less about how good you are at what you do, and more about the basic demand. Exchange-traded funds are an ideal way of holding materials stocks, as it helps absorb some single-stock shock by bundling large numbers of stocks dealing in one industry or several. These ETFs offer a number of takes on the sector.
FlexShares Morningstar Global Upstream Natural Resources ETF (ticker: GUNR)
The “upstream” in GUNR’s name is just an industry way of saying “exploration and production.” Thus, this ETF primarily invests in companies that find and pump oil, mine metals and perform other functions at the E&P space. In GUNR’s case, you’re looking at 121 holdings that are about 28 percent weighted in energy, 35 percent in metals and 26 percent in agriculture. Top holdings include Exxon Mobil Corp. (XOM), BHP Billiton (BHP) and Monsanto Co. (MON).
Expenses: 0.48 percent, or $48 annually per $10,000 invested (includes 1-basis-point waiver)
iShares Global Timber & Forestry ETF (WOOD)
WOOD is a fund that focuses on companies that produce paper, packaging and other forest products, and as a result of investing in such a niche area, it has just 27 holdings. Also, while it’s a “global” fund, many of the world’s big players are from the U.S., which holds a nearly 50 percent weight in the fund. Top holdings include companies like Rayonier (RYN), which provides timber, pulp and other wood products, and Weyerhaueser Co. (WY), which owns more than 6 million acres of timberland.
Expenses: 0.48 percent
VanEck Vectors Junior Gold Miners ETF (GDXJ)
“Junior” miners are the scouts of the materials world that go out and find potentially mineral-rich properties, test them and start bringing mines up to speed before selling operations off to the major miners. Junior miners can pop substantially on significant finds, which is harnessed by the GDXJ, a Canada-heavy fund of gold junior miners whose top holding is, ironically enough, First Majestic Silver Corp. (AG). As a note, though, GDXJ is highly sensitive to gold prices; whenever gold swings, GDXJ typically swings harder.
Expenses: 0.56 percent
VanEck Vectors Gold Miners ETF (GDX)
The GDX consists of the stocks you typically think about when you think about gold mining — companies that actually operate the mines and dig up gold. These tend to be much larger businesses than juniors, with more financial resources and thus a bit more stability — though the GDX still is a pretty volatile fund that also wiggles a lot when gold is on the move. Top dogs among GDX’s 42 holdings are Barrick Gold Corp. (ABX) and Newmont Mining Corp. (NEM).
Expenses: 0.52 percent
iShares Global Materials ETF (MXI)
This iShares fund is a global batch of large materials companies, but like many global funds, MXI is full of overweights. For instance, while MXI invests in stocks across 15 to 20 countries, the U.S. is the most heavily weighted at about 36 percent. And while MXI’s holdings span industries from construction materials to gold miners, more than half of the fund is dedicated to chemicals companies, and another quarter to metals and mining stocks.
Expenses: 0.47 percent
Sprott Gold Miners ETF (SGDM)
The SGDM is a more targeted gold mining play that invests in 25 large- and mid-cap gold stocks with screens to keep companies with strong revenue growth and balance sheets. However, it’s also a much more lopsided fund, with nearly half of the fund dedicated to top three holdings Agnico Eagle Mines (AEM), Randgold Resources (RGLD) and Goldcorp (GG). For perspective, GDX’s top holdings make up about a quarter of the ETF’s weight. SDGM also is about 5 basis points more expensive than VanEck’s product.
Expenses: 0.57 percent
Materials Select Sector SPDR ETF (XLB)
If materials are nails, the XLB is a respectable hammer. Like the other State Street SPDR sector funds, XLB is the king of broad materials funds, boasting $2.7 billion in assets to make it the largest fund of its kind. However, diversity is not the name of the game here — because XLB is market cap-weighted, the fund is extremely overweight with more than 70 percent in chemicals, including likely merger partners Dow Chemical Co. (DOW) and DuPont (DD) at 22 percent of the fund. If you’re looking for a truly broad set of holdings, XLB isn’t your ETF.
Expenses: 0.14 percent
iShares MSCI Global Metals & Mining Producers (PICK)
The PICK ETF is a diversified fund on the mining front. For one, the global spread is excellent for an iShares fund, with a quarter of the holdings in Australia, 16 percent in the U.S., 10 percent in Japan and 5 percent to 4 percent holdings in another five countries. Top holdings are a little heavy, with BHP at 9.6 percent and Rio Tinto (RIO) at 7.4 percent. But you get access to 178 stocks engaged in both precious and basic metals mining alike.
Expenses: 0.39 percent
Vanguard Materials ETF (VAW)
The VAW is another chemicals-heavy materials ETF, with the industry making up about 60 percent of the fund across specializations such as fertilizers and commodity chemicals. Other notable industries include paper packaging (9 percent) and industrial gases (8 percent). This Vanguard fund also is similar to XLB in that it loves DOW and DD, though at just a combined 16 percent weight rather than 22 percent. Of course, what sets VAW is what typically separates Vanguard funds from the pack — dirt-cheap fees for diversified funds.
Expenses: 0.1 percent
iShares MSCI Global Gold Miners (RING)
Most gold mining ETFs are going to be pretty global in nature anyway — to wit, both GDX and iShares’ RING are 55 percent exposed to Canadian mining stocks, and both weigh the U.S., South Africa and Australia between about 9 and 15 percent. RING really differs from GDX in three ways: at 30 holdings, it has 12 fewer stocks; it’s much more top-heavy, with Barrick Gold, Newmont Mining and Goldcorp making up nearly 40 percent of the fund; and it’s significantly cheaper, at 13 basis points less.
Expenses: 0.39 percent
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The 10 Best Materials ETFs We Could Dig Up originally appeared on usnews.com
