ETF Trends
ETF Trends

The Materials Select Sector SPDR (NYSEArca: XLB) and other materials exchange traded funds were standouts among sector ETFs last year. For example, the largest and most heavily traded materials ETF, jumped 16.8%, easily outpacing the 12% returned by the S&P 500.

Though it is still early in 2017, it appears some of that materials momentum has carried over into the new year.

President Donald Trump’s has reiterated his plan to build a wall along the Mexican border, reinforcing construction and materials-related exchange traded funds.

Trump tweeted Tuesday “Among many other things, we will build the wall!” ahead of his visit to the Department of Homeland Security, the agency that has jurisdiction over securing the border, Bloomberg reports.

Rivals to XLB include Vanguard Materials ETF (NYSEArca: VAW) and Fidelity MSCI Materials Index ETF (NYSEArca: FMAT).

Additionally, the Guggenheim S&P Equal Weight Materials ETF (NYSEArca: RTM), which equally weights components and includes a larger tilt toward smaller U.S. companies, holds larger tilts toward construction materials sub-sector.

“The drivers within the materials sector are currently copper and agriculture. Investors are accumulating the stocks in those segments,” reports ETF Daily News.

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.

Due to their close ties with the commodities market, materials stocks and ETFs 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.

“Regardless of what analysts say, the market has chosen a clear direction. The materials sector chart shows how the sector has risen to all-time highs this week. Although the weekly chart below only shows the last 5 years, the longer term chart has a similar conclusion as the 2008-highs were significantly lower than today’s level,” notes ETF Daily News.

For more information on the materials sector, visit our materials category.