ETF Trends
ETF Trends

With a weight of just 3.5% materials sector is merely the eighth-largest of the 10 represented in the S&P 500. That is less than half the weight the benchmark U.S. index allocates to consumer staples, the seventh-largest sector.

However, the materials sector’s slight stature in the S&P 500 belies the opportunity some of the group’s stocks and exchange traded funds are currently offering as late-cycle, value plays. The allure of the materials sector was on display last Friday when, on a dreadful day for U.S. stocks, fewer than 10 ETFs made new all-time highs. Two of those were materials funds, including the PowerShares DWA Basic Materials Momentum Portfolio (NYSEArca: PYZ).

Like one of its larger, more traditional materials ETF rivals, PYZ remained durable during Friday’s sell-off due in part to the ETF’s exposure to high-flying LynondellBasell (NYSE: LYB), a stock that soared to a new all-time high last Friday. [Lyondell Lifts This Materials ETF]

PYZ allocates 4.2% of its weight to LyondellBasell, one of the largest weights to that stock among ETFs. While LyondellBasell has certainly helped, it does not tell the entire story behind PYZ’s 11.6% year-to-date gain.

PYZ was one of 10 PowerShares ETFs that converted to tracking momentum-driven indices courtesy of Dorsey Wright & Associates in February. As has been the case with several of the other PowerShares ETFs that made the index changes, the index swap has been kind to PYZ. Over the past three months, the ETF is up 9.5% compared to a 6.95% gain for the Vanguard Materials ETF (NYSEArca: VAW).

Since large-cap materials stocks, particularly those hailing from the chemicals industry, are not often associated with momentum, PYZ currently allocates less than 21% of its weight to large-caps. Mid-caps are the story with this ETF, combining for nearly 56% of the fund’s weight.

Since large-cap materials stocks, particularly those hailing from the chemicals industry, are not often associated with momentum, PYZ currently allocates less than 21% of its weight to large-caps. Mid-caps are the story with this ETF, combining for nearly 56% of the fund’s weight. [Index Changes Bring Good Vibes for PowerShares ETFs]

That has been a positive in a year in which mid-caps, though still frequently overlooked, have delivered solid performances while trading at more compelling valuations to their large- and small-cap peers.

In another sign of PYZ’s recent strength just one of the ETF’s top-10 holdings, a group that combines for over 41% of the ETF’s weight, has traded lower over the past 90 days. That offender is FMC (NYSE: FMC).

There are looming catalysts that could help PYZ build on its gains, including earnings reports from six of its top-10 holdings over the next two weeks.

PowerShares DWA Basic Materials Momentum Portfolio