Exchange Traded Funds (ETFs)

Special 10-Part Series on the Premier Sector Funds: A Material Underdog

With a new year and a new administration, many investors are optimistic about fresh possibilities to grow their profits within the market. Health care and technology continue to make headlines, but people fail to recognize the foundation offered by another highly profitable sector: materials.

While materials was the worst-performing S&P sector in 2024, 2025 means a new opportunity. Last year, manufacturing shutdowns, election uncertainty and China’s economic issues contributed to the fund’s poor performance. However, a new leaf has been turned, and the material sector could be the one to watch.

According to The Street, Goldman Sachs’ analysts have suggested overweighting portfolios in the materials sector. In fact, in the list of five, materials rank number one.

This week, the exchange-traded fund is handpicked for investors wanting to get in on investing in the underdog that analysts are keeping their eye on: the Materials Select Sector SPDR Fund (XLB).

XLB aims to provide investment results that generally correspond to the price and yield performance of the companies within the Materials Select Sector Index. To track the performance, the fund employs a replication strategy, as it invests almost all of its total assets in the securities comprising the index.

The index is comprised of essential companies in producing some of the most important and most profitable goods. The index includes securities of companies from the chemical industry, metals and mining, paper and forest products, containers and packaging and construction materials.

Last year, XLB produced a negative 4.53% return versus a positive 23% for the S&P 500 Index as a whole. But Goldman Sachs forecasts that the fund should generate 13% earnings-per-share (EPS) growth in both 2025 and 2026, and that looking back, over the past 20 years, valuation for the sector sits in just the 18% percentile.

Exclusive ETF Talk: Finding Value in Your Brokerage

The Materials Select Sector SPDR ETF has 31 holdings, a dividend yield of 1.9% and the fund is non-diversified.

The fund has a market cap of $5.44 billion and an expense ratio of 0.09%. Its top holdings are Linde PLC (LIN), Sherwin-Williams Co (SHW), Air Products & Chemicals Inc. (APD), Freeport-McMoRan (FCX), Ecolab Inc. (ECL), Corteva Inc (CTVA), Vulcan Materials Co. (VMC), Nucor Corp (NUE), Martin Marietta Materials Inc. (MLM) and Dupont de Nemours (DD).

The chart above reflects a bearish sentiment, but XLB is an ETF for investors who are confident in the raw building blocks of the global economy, and that have the time and ability to ride out periods of protracted downside.

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 Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. 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.