Finally, while a broader analysis of low quality credit conditions recommends caution, we wanted to point to one area where we have seen improvement: the Basic Materials sector. On February 11th high yield credit markets and the stock markets made what appears to be short-term lows. Within the high yield credit space, only one sector, Basic Materials, did not see its option-adjusted spreads make new multi-year highs (and thus price lows). Credit markets often lead equity prices and, on this basis, the Basic Materials sphere, which has been ravaged by the collapse in commodity prices, might deserve a closer look due to its impressive short-term relative strength. While there is no way to narrowly target the Basic Materials sector on the fixed income side, more aggressive investors might wish to examine equity ETFs in the space, including the Basic Materials Select Sector SPDR (XLB), Vanguard Materials ETF (VAW), or the Market Vectors Gold Miners ETF (GDX).
Mason Wev is a Portfolio Manager at Clark Capital Management Group, a Participant in the ETF Strategist Channel.
Source of both charts is Bloomberg
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