Some sectors are considered defensive, while others fall into the cyclical camp, meaning they’re tethered to the economy’s performance. Materials is certainly in the latter camp, and that’s something to remember when considering ETFs such as the ALPS CoreCommodity Natural Resources ETF (CCNR).
For all the talk about the U.S. economy perhaps softening this year — plausible thinking given the state of the jobs market — CCNR has run contrary to that talk, surging more than 28% since the start of the year. In fact, U.S. GDP jumped 3.3% in the second quarter, potentially providing ballast to the materials sector and the CCNR investment thesis. Plus, CCNR could be in focus this week should the Federal Reserve lower interest rates as is widely expected.
“For 2025 and beyond, performance in this highly cyclical sector is likely to continue to track the ups and downs of the US and global economies. If interest rates continue to fall, as they have begun to in many major economies, it could usher in a new cycle of growth to help propel the stocks,” according to Fidelity.
CCNR Has Perks
As Fidelity points out, materials stocks have a tendency to track what’s going on globally, not just what’s taking place here in the U.S. That’s relevant to investors considering CCNR, because the ETF allocates nearly two-thirds of its roster to ex-U.S. equities, making it more global than many traditional global equity funds.
Geographic diversification is nice, but only if the country exposures provide investors with access to thriving markets. CCNR checks that box. For example, the ALPS ETFs allocates more than 14% of its roster to Chinese and Japanese stocks at a time when the MSCI China and Japan indexes are up 37.8% and 21.3%, respectively, year-to-date.
Despite the trade barbs with U.S., Canadian stocks — 19.30% of the CCNR roster — are soaring this year. The MSCI Canada Index is higher by almost 24% year-to-date. Interestingly, CCNR’s Canadian exposure could be an ongoing catalyst for the ETF, because Prime Minister Mark Carney recently rolled out Build Canada Homes, a new agency designed to jumpstart residential construction in the country.
“Build Canada Homes will transform public-private collaboration and deploy modern methods of construction, as it catalyzes the creation of an entirely new Canadian housing industry. It will leverage public lands, offer flexible financial incentives, attract private capital, facilitate large portfolio projects, and support modern manufacturers to build the homes that Canadians need,” according to a press release.
That effort could benefit an array of sectors in Canada, including energy, which accounts for 35.52% of the CCNR portfolio.
For more news, information, and analysis, visit the ETF Building Blocks Content Hub.
