Exchange Traded Funds (ETFs)

Building Your Portfolio with a Basic Materials Fund

The Materials Select Sector SPDR Fund (XLB) tracks a market-cap-weighted index of U.S. basic materials companies. The fund includes only the materials components of the S&P 500.

This index is primarily composed of companies involved in industries such as chemicals, construction materials, containers & packaging, metals & mining, and paper & forest products. XLB is a massive, liquid exchange-traded fund (ETF) that invests in basic materials companies from the S&P 500.

Its limited selection universe means it is heavily concentrated, with just a few holdings making up a huge chunk of the portfolio. XLB generally favors large-cap holdings, but still offers reasonable exposure to the space.

The fund is one of the most popular in the U.S. materials segment, with a huge asset base and extraordinary trading volume. It has excellent potential for occasional traders and larger investors alike.

Among the fund’s top holdings are Linde PLC (NYSE: LIN), DuPont de Nemours (NYSE: DD), Ecolab Inc. (NYSE: ECL) and Air Products & Chemicals, Inc. (NYSE: APD). Its primary sectors are Commodity Chemicals (53.71%), Specialty Chemicals (8.62%), Non-Paper Containers (6.80%), Paper Packaging (6.35%) and Construction Materials (5.71%).

Chart courtesy of StockCharts.com

The fund has $4.54 billion in assets under management, a $40.98 billion average weighted market cap and 29 holdings. Its average spread is 0.02% and expense ratio is 0.13%, meaning it is relatively inexpensive to hold compared to other exchange-traded funds (ETFs). XLB pays a $0.35 dividend, giving it a 1.90% yield. The fund currently trades just below $60.

XLB provides exposure to the Basic Materials sector, as well as large-cap stocks. However, each fund has its own investing goals and, as always, it is crucial for every person to conduct his or her own due diligence to decide whether or not it makes sense personally.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.