It might not be getting the credit it deserves, but the Materials Select Sector SPDR (NYSEArca: XLB) is up 6.6% this year, making it the second-best of the nine sector SPDRs behind only the Health Care Select Sector SPDR (NYSEArca: XLV).
What is good for XLB is proving to be great for its triple-leveraged counterpart, the Direxion Daily Basic Materials Bull 3x Shares (NYSEArca: MATL). Arguably overlooked in the world of leveraged sector exchange traded funds, MATL has set a torrid pace over the past month, surging 11.4%, though that is less than triple than the almost 4.1% gained by XLB over the same period. [Materials ETFs on the Mend]
MATL attempts to deliver three times the daily performance of the S&P Materials Select Sector Index, XLB’s underlying benchmark.
Materials stocks and ETFs, such as XLB and MATL have enjoyed ample catalysts this year. For example, the stronger dollar is also supporting mining projects where some producers are even expanding production as currency moves diminish costs, even as commodity prices have been tumbling. Consequently, with supply continuing to rise, some observers are expecting metal prices to fall and remain pressured.
Rising Treasury yields, a sign that the Federal Reserve could be close to finally raising borrowing costs and that is good news for cyclical sectors. The technology, industrial and materials companies are among cyclical sectors that typically strengthen in a rising rate environment as investors turn away from safer assets and shift into riskier areas of the market. [Materials ETFs in Rally Mode]
Last week it was reported that Monsanto could be eying a $40 billion takeover of Swiss rival Syngenta (NYSE: SYT). That helped MATL to a Friday pop of 5.4% on more than triple the average daily volume. Monsanto is XLB’s second-largest holding at a weight of 9.6%.
Speaking of increased volume, MATL’s volume over the past five days has been 156% above the trailing 20-day average, according to Direxion data.
Direxion Daily Basic Materials Bull 3x Shares