The Materials Select Sector SPDR (NYSEArca: XLB), the largest exchange traded fund dedicated to that sector, is off more than 12% this month. Data indicate investors are not waiting around to see what happens next.
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.
“More than $448 million was pulled from State Street Corp.’s Materials Select Sector SPDR Fund, or XLB, last week, reducing its assets by 15 percent to $3.18 billion, the lowest in at least a year, according to Bloomberg data,” reports Bloomberg.
XLB holdings are tumbling this month amid a spate of disappointing earnings news.
Earnings Woes
Earlier this month, paint and coatings supplier PPG Industries (NYSE: PPG) warned it will likely report weak third- and fourth-quarter results due to higher material costs and diminished demand from China.
“Chemical giant DowDuPont Inc., XLB’s largest component, also slipped this month after it cut the asset value of its DuPont Co. agriculture businesses. The stock is down 18 percent in October,” according to Bloomberg.
Historical data indicate XLB is one of the two best sector SPDR ETFs to own in December and January. Plus, cyclical sectors, of which materials certainly is one, often perform well as interest rates rise.
“Among the companies owned by XLB that will report earnings this week are LyondellBasell Industries NV, its seventh-largest holding,” notes Bloomberg.
Rivals to XLB include the Fidelity MSCI Materials Index ETF (NYSEArca: FMAT) and the Vanguard Materials ETF (NYSEArca: VAW).
For more information on the materials sector, visit our materials category.