Oil’s slide has identified some winners at the sector level, namely consumer-related shares, but beyond the energy sector, there are some losers as well. Those losers include the materials sector, which was already scuffling heading into 2015.
Last year, the Materials Select Sector SPDR (NYSEArca: XLB) rose just 7.2%, including paid dividends. XLB’s 2014 showing was 630 basis points worse than the S&P 500 and enough to make the fund the second-worst of the nine sector SPDR ETFs behind only the Energy Select Sector SPDR (NYSEArca: XLE). To this point in the new year, only three of the nine sector SPDRs have traded higher. XLB is not a member of that trio.
In theory, materials stocks should be winner in a low energy price environment because lower oil and gas prices reduce input costs for energy-intensive materials producers and chemicals manufacturers. In reality, that has not been the case. While the materials sector’s earnings warnings have not yet reached alarming heights, it is clear oil’s plunge is taking a toll on the sector. [Earnings Surprises With Sector ETFs]
Of XLB’s top 10 holdings, a group that combines for about two-thirds of the ETF’s weight, only three have traded higher to start 2015.
“The investment markets reflect these winners and losers in the economy. Consumer driven sectors of the market have performed quite well. The energy and commodity sectors of the market have not. Between oil stocks, the materials sector, and industrial and utility names in commodity-related businesses, roughly 20 percent of the S&P 500 is a loser with falling oil prices,” according to Jones & Associates.
LyondellBasell Industries (NYSE: LYB), one of XLB’s top 10 holdings, said in the fourth quarter low oil prices will damp its margins. That after the company helped materials ETFs perform well in the first half of 2014 on the back of rising crude prices. [A Lyondell Lift for This Materials ETF]
A recent Morgan Stanley report highlighted PPG Industries (NYSE: PPG), a top 10 holding in XLB, as one materials name that could endure lower oil prices, but the bank also identified Eastman Chemical (NYSE: EMN), LyondellBasell and Dow Chemical as potentially challenged by lower oil prices. Those stocks combine for over 16% of XLB’s weight.
XLB’s five-year correlation to the United States Oil Fund (NYSEArca: USO) is over 59%, according to State Street data.
Materials Select Sector SPDR
