Base Metal ETFs

More commodity exchange traded funds (ETFs) make investors wonder about the sectors within. Are they overlapping each other, giving the same exposure? Or are they giving investors a tool to reach only certain market sectors?  Richard Kang of Seeking Alpha gives an overview of the metals ETFs and we did a review of them as well.

For broad exposure in materials, Vanguard Materials ETF (VAW), iShares Dow Jones U.S. Basic Materials (IYM), and SPDR S&P Metals and Mining (XME) are all options for investors.  The Market Vectors Steel (SLX) is more concentrated as it is a pure play on steel companies across the globe. The chart below shows how these ETFs tend to move in fairly the same pattern.  However, SLX has shown a run up past the others in the past month.

The ETF PowerShares Base Metals (DBB) is made of futures contracts including aluminum, zinc and copper and is intended to reflect the performance of the industrial metals sector.  Thus, as the chart indicates, does not move in the same way as the others.

Looking closer at IYM and VAW, the make up of these two ETFs are similar.  They both hold the same top companies with similar weights – DuPont (DD), Dow (DOW), Monsanto (MON) and Alcoa (AA). 

So there seems to be a little something for all investors.  Make sure you review your portfolio and the ETFs before making a decision.  It’s also important to have an exit strategy in place.