ETF Chart of the Day: Materials

October 14th at 10:32am by Paul Weisbruch, Street One Financial

Exchange traded funds tracking the U.S. materials sector have been relatively active during a week of mostly subdued volumes.

Generally, “materials” relates to companies that are involved in industries including chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products, so it is indeed a diverse group of subsectors.

Materials Select Sector SPDR (NYSEArca: XLB) is the giant in the space, with nearly $2 billion in assets under management.

The iShares DJ U.S. Basic Materials (NYSEArca: IYM), Vanguard Materials (NYSEArca: VAW), First Trust Materials AlphaDEX (NYSEArca: FXZ), PowerShares Dynamic Basic Materials (NYSEArca: PYZ) and Rydex S&P Equal Weight Materials (NYSEArca: RTM) are other alternatives within the space that offer different index methodologies and weighting schemes as well as exposure to indexes outside of the S&P Basic Materials index that XLB follows.

The sector itself has considerably lagged the broader market recently. [Basic Materials Trail Market]

For example, XLB is down 15.07% year to date versus the S&P 500 down 4.16%, and in the railing one year period, XLB is down 6.32% versus the S&P 500 up 2.20%. This said, it does not outright shock us that the recent flows in the space have been on the sell side.

This week alone, FXZ shed about 20% of its overall assets under management due to heavy redemption activity on trading volumes that are a large multiple of the 451,000 shares that typically trades in the fund on a daily basis.

It seems that portfolio managers are cutting back exposure to the laggard sector in portfolios and using the recent bounce back in the equity markets in order to lighten positions, and perhaps embrace sectors that based on relative strength versus the S&P 500 benchmark, seem more poised to break out as the markets run higher such as utilities, healthcare, consumer staples, consumer discretionary and technology.

Finally, for those managers looking to leverage potential short term trading opportunities in the materials space, Direxion Daily Basic Materials Bear 3X (NYSEArca: MATS) and Direxion Daily Basic Materials Bull 3X (NYSEArca: MATL) offer three times daily leveraged exposure to the sector.

First Trust Materials AlphaDEX

For more information on Street One ETF research and ETF trade execution/liquidity services, contact pweisbruch@streetonefinancial.com.