By Todd Rosenbluth, CFRA
The CFRA Focus ETF for November is Materials Select Sector SPDR (XLB), which earns our top rating. Unlike some research providers that rely on past performance metrics, CFRA’s ratings focus on the fund’s holdings and costs to provide a more forward-looking approach.
The November-through-April six-month period has historically been a strong one for the S&P 500 Index, rising 6.6% on average since 1994, according CFRA Research, ahead of the 4.1% average in all six-month periods. According to Sam Stovall, Chief Investment Strategist at CFRA, the S&P 500 Materials sector advanced 9.3% on average during the seasonally strong six-month period and outperformed the broader S&P 500 Index 69% of the time.
XLB is the largest diversified ETF for the Materials sector and holds S&P 500 constituents in a market-cap manner. The fund is relatively concentrated with 65% of assets in its top-10 holdings; moreover, six of them are CFRA Buy recommendations, which supports our positive rating on XLB. DuPont de Nemours (DD), LyondellBasell Industries (LYB), Sherwin-Williams (SHW) and PPG Industries (PPG) are some examples of the ETF constituents.
At the sub-industry level, Specialty Chemicals companies (32% of assets) and Industrials Gases (23%) were the largest, followed by Paper Packaging (10%).
Further supporting CFRA’s rating were the fund’s low costs. XLB incurs a modest 0.13% expense ratio and trades approximately six million shares daily with a penny bid/ask spread. The fund also trades with bullish technical tendencies and is above its 200-day moving average.
Though XLB has incurred outflows thus far in 2019 and is lagging the S&P 500 Index, CFRA thinks the history of sector outperformance and the fund’s holdings on a go-forward basis are on the side of investors who seek out this cyclical sector.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.