Opportunities abound in materials.
For investors interested in trading commodities or materials-related stocks, 2018 has been wild. In January, crude oil hit its highest level since 2014 thanks to increased demand and modest supply constraints. Then in February, turmoil in the stock market and weakness in the U.S. dollar helped boost gold prices. And then in March, President Donald Trump launched surprise tariffs on imported metals including aluminum and steel. It has been quite a ride for related mining and materials investments as a result. But in certain areas of the commodity market, the trends have been bullish and investors are looking to make significant profits. Here are seven materials exchange-traded funds to invest in commodities.
Vanguard Materials ETF (ticker: VAW)
This ETF includes companies from a range of industries in the basic materials sector, including metals and mining, forest products and construction materials. Top holdings include chemicals icon DowDupont (DWDP) and agribusiness giant Monsanto Co. (MON). If you’re looking to cover a wide swath of the materials sector in all its forms, then the VAW is a good start. Just be aware that it’s heavily biased toward DWDP with about 17 percent of assets, so it’s not as diversified as other funds. There’s about 40 percent in chemicals and industrial plays, too, so it may not be as devoted to metals and mining as some materials investors would like.
SPDR S&P Metals and Mining ETF (XME)
A more focused alternative that stresses metals instead of other materials is the XME. Top holdings right now include Century Aluminum Co. (CENX) and Freeport McMoRan (FCX). Particularly given the talk about tariffs and the prospect of inflation lifting the prices of base metals like aluminum, steel and copper, this fund is an interesting way to play metals and mining in 2018. Just be aware that roughly half the portfolio has exposure to steel, however, so this metal has an outside influence over others in the performance of this materials ETF.
VanEck Gold Miners ETF (GDX)
If you want to look beyond base metals and play precious metals such as gold, the VanEck Gold Miners fund is one of the most popular ways. With almost $8 billion in assets under management, it is one of the most effective ways to play stocks that extract precious metals from the earth. Just keep in mind that because these are miners, their share prices may not move exactly in line with gold prices from day to day. Also, one of the biggest markets for mining gold is Canada, so roughly half of this fund’s assets are international even if that means just north of the U.S. border.
VanEck Vectors Rare Earth/Strategic Metals ETF (REMX)
Looking beyond conventional precious metals, the REMX fund allows investors to play in the smaller but increasingly interesting universe of rare earth metals. These include substances you may be familiar with like titanium and tungsten, but also cerium used for high-end automotive and electronics applications. Not only are these rare metals hard to directly invest in, but so are the companies that mine them since they include smaller companies in Asia, such as China Molybdenum Co. There is obviously much more risk in this subsector, however the more than 70 percent gains in REMX shares since last summer is proof there is also potential for profits.
PowerShares S&P SmallCap Materials Portfolio (PSCM)
If you like this idea of fast-moving materials stocks but don’t want to give up the stability of companies that traffic in mainstream metals, then the PSCM is a good way to split the difference. This PowerShares ETF focuses exclusively on smaller players in the sector, meaning they may not have the deep pockets of the big guys but they have more potential for growth when the environment is favorable. Holdings include Ingevity Corp. (NGVT), a $3 billion chemicals stock, and KapStone Paper and Packaging Corp. (KS), among others. Less than 20 percent of the portfolio is in smaller mining companies.
IShares Global Materials ETF (MXI)
Speaking of international materials investments, you may want to consider a truly global approach to raw materials and commodities instead of simply focusing on U.S. listed names. That’s where the MXI comes in, spanning more than 100 stocks in all corners of the world. This includes European chemical giant BASF, Australian mining behemoth BHP Billiton (BHP) and plenty of U.S. corporations you’ll recognize. However, only about a third of the portfolio is in American corporations and no region other than the U.S. represents more than about 10 percent of the total portfolio, so this is truly a geographically diverse play on the materials sector.
PowerShares DB Commodity Index Tracking Fund (DBC)
If you’re less inclined to play the equities angle and want a more direct play on the raw materials themselves, then look no further than the DBC as a diversified way to play a basket of major commodities. The fund invests directly in these raw materials via futures contracts across the most widely-held commodities. These include crude oil, gold, sugar, zinc and copper among other things. Crude oil futures make up a big share of the fund at around 25 percent of the portfolio. For those looking to get a direct play on the materials market, this DBC ETF has a lot to offer.
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7 Materials ETFs to Buy Now originally appeared on usnews.com
