Materials Sector ETF Outperforming Broad Markets

January 10th at 11:30am by Tom Lydon

Materials sector exchange traded funds have been outperforming broader U.S. equities as global growth gains momentum, notably in the emerging markets.

The Materials Select Sector SPDR (NYSEArca: XLB) has gained 8.2% over the past month while the S&P 500 rose 3%.

The materials sector is expected to see earnings rise up to 6.5% for the fourth quarter as large companies in the sector profit on exposure to growth in the emerging markets, including Latin America and China, the Financial Times reports. [S&P Likes Materials ETFs on Emerging Market Demand]

On Tuesday, Monsanto (NYSE: MON) announced that its fiscal first-quarter profits almost tripled on corn seed sales to South America that jumped 27% and higher herbicide prices, the Wall Street Journal reports. Monsanto has been typically calm in the first quarter but demand in South America has kept the company going in a period of less demand in the U.S.

“One of the most obvious areas of [our fiscal] first- quarter strength is our corn performance, [and one] of the most important drivers there is Latin America,” Hugh Grant, chief executive, said in the Financial Times article.

Monsanto is the largest holding in XLB, accounting for 11.1% of the ETF. Other top holdings include du Pont de Nemours and Co (NYSE: DD) 9.0%, Dow Chemical (NYSE: DOW) 8.3%, Praxair (NYSE: PX) 7.1% and Freeport-McMoRan Copper & Gold (NYSE: FCX) 7.0%.

For technical traders, Gregory Harmon for Dragonfly Capital points to several indications that suggest XLB is ready to move higher.

The materials ETF since October 2011 has continued to make a series of “higher highs and higher lows,” defining the trend. XLB is breaking above resistance, momentum is bullish and the fund is seeing inflows, Harmon writes.

Materials Select Sector SPDR

For more information on the materials sector, visit our materials category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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