In Friday’s options trading we noted a pick-up in put activity across a number of sector exchange traded funds, including basic materials.
Materials Select Sector SPDR (NYSEArca: XLB) is the largest ETF in the space covering that particular sector, having amassed over $2.2 billion in assets over the product’s lifetime.
Year to date, the sector has handily outperformed the broad market, as XLB is up 12.08% versus the S&P 500 Index rallying 9.10% so perhaps institutional players believe that the sector has run too far, too fast, and is due for a pullback.
Other alternatives in the sector that differ from the index composition of XLB, which tracks the S&P Basic Materials Select Sector index include PowerShares Dynamic Basic Materials (NYSEArca: PYZ), First Trust Materials AlphaDEX (NYSEArca: FXZ), Vanguard Materials (NYSEArca: VAW), Rydex S&P Equal Weight Basic Materials (NYSEArca: RTM) and iShares DJ Basic Materials (NYSEArca: IYM).
VAW and IYM are both market cap weighted (where the indexes are calculated by taking share price multiplied by shares outstanding), similar to XLB, whereas RTM takes an equal weighted approach on the same index that XLB tracks.
Furthermore, PYZ and FXZ employ fundamental/quantitative screening in selecting constituents and individual weightings in their indexes for this industry sector.
Year to date, the fundamental/quantitative approach has yielded impressive results, as PYZ is up 18.07% and FXZ is up 16.57%, outpacing the market cap and equal weighted selections.
PowerShares Dynamic Basic Materials