As markets move toward the late-cycle phase of the normal business cycle, investors should look to areas like the materials sector and related exchange traded funds (ETFs).
With the economy recovery maturing, the materials sector, which is closely tied to the prices of raw materials, have traditionally done well as inflation rises and late-cycle economic expansions help support demand.
Looking at the basic materials sector, this market segment is dominated by chemicals producers, like Dow Chemical (NYSE: DOW), DuPont (NYSE: DU) and Monsanto (NYSE: MON), along with smaller tilts toward metals and miners, paper and timber, containers and packaging, and construction materials.[related_stories]
Due to their close ties with the commodities market, the materials sector are susceptible to cyclical demand and volatility in raw material and energy prices. While the sector’s sensitivity to business cycles can expose investors to greater risks, the area may also offer attractive returns during periods of strong growth.
Investors interested in following the basic materials sectors or more targeted areas within the space can look to a number of ETF options.
Basic materials ETFs:
- Materials Select Sector SPDR (NYSEArca: XLB)
- Vanguard Materials ETF (NYSEArca: VAW)
- iShares U.S. Basic Materials ETF (NYSEArca: IYM)
- First Trust Materials AlphaDEX Fund (NYSEArca: FXZ)
- iShares S&P Global Materials (NYSEArca: MXI)
- PowerShares DWA Basic Materials Momentum Portfolio (NYSEArca: PYZ)
- Fidelity MSCI Materials Index ETF (NYSEArca: FMAT)
- Guggenheim S&P 500 Equal-Weight Materials ETF (NYSEArca: RTM)
- PowerShares S&P SmallCap Materials Portfolio (NasdaqGS: PSCM)
- John Hancock Multifactor Materials ETF (NYSEArca: JHMA)
- SPDR S&P International Materials Sector (NYSEArca: IRV)
Materials sub-sector ETFs:
- SPDR Metals & Mining ETF (NYSEArca: XME)
- iShares Global Timber & Forestry ETF (NYSEArca: WOOD)
- Guggenheim Timber ETF (NYSEArca: CUT)
- iShares MSCI Global Metals & Mining Producers ETF (NYSEArca: PICK)
- Market Vectors Steel ETF (NYSEArca: SLX)
- Global X Lithium ETF (NYSEArca: LIT)
- Market Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX)
- Global X Copper Miners ETF (NYSEArca: COPX)
- Global X Fertilizers/Potash ETF (NYSEArca: SOIL)
Leveraged/inverse materials ETFs:
- ProShares Ultra Basic Materials (NYSEArca: UYM)
- ProShares UltraShort Basic Materials (NYSEArca: SMN)
- ProShares Short Basic Materials (NYSEArca: SBM)