Materials exchange traded funds with heavy exposure to Dow component DuPont (NYSEArca: DD) are trading slightly lower Wednesday after activist investor Nelson Peltz’s Trian Fund Management lost its effort to land four seats on the Delaware-based company’s board.
The Materials Select Sector SPDR (NYSEArca: XLB), the largest materials ETF, is off less than 0.4% at this writing. That is not a bad showing for XLB considering the $2.8 ETFF had a weight of almost 11.3% to DuPont entering trading today and the stock is down more than 6%.
Peltz’s Trian Fund Management LP unveiled a stake in DuPont, now valued at $1.8 billion, in July 2013 at about the same time he first urged PepsiCo (NYSE: PEP) to consider splitting its beverages and snacks businesses. He urged DuPont to separate its agriculture business from its cyclical chemicals operations. [Peltz Pushes for DuPont Breakup]
The Vanguard Materials ETF (NYSEArca: VAW) and the iShares U.S. Basic Materials ETF (NYSEArca: IYM) are down an average of just 0.16% today. The $509 million IYM has a weight of 10.5% to DuPont while the $1.3 billion VAW had an 8% DuPont allocation at the end of the first quarter, according to Vanguard data.
Peltz was nothing if not devoted to winning board seats and potentially forcing a spin-off at DuPont. Trian even created a website for the cause, highlighting, among other DuPont offenses, what Trian deemed to be excessive corporate costs, poor capital allocation, poor corporate governance, bureaucracy and a lack of accountability.
Materials stocks and ETFs, such as XLB and VAW, 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]
According to some reports, Trian is the fifth-largest DuPont shareholder. Yahoo Finance data shows the firm as the fourth-largest DuPont investor. Two ETF sponsors, Vanguard and State Street, are the two largest DuPont shareholders.
Materials Select Sector SPDR