Sector exchange-traded funds (ETFs) offer investors the ability to gain exposure to an industry without having to corner the market on every company’s stock that trades in that sector. So, for example, if you wanted to invest in the steel industry, you could buy a steel ETF instead of making multiple trades to collect shares of steel companies in your portfolio. ETFs also come with certain tax benefits.
It is possible to target a steel index, but even then you have to manage trading multiple stocks in order to fill your basket and get the targeted index price. In both situations–index or individual stocks–you have to pay commissions and fees on the multiple trades, costs that can add up rather quickly.
For those reasons, it can be more beneficial to buy a steel ETF, if that is your target sector. With one trade, you get instant exposure to the industry and you save on commissions.
There are downsides to this strategy. You are limited to the companies in the fund. The ETF could shut down because of a lack of trading volume, although you would still get your market value. The other downside is the limited options available. The only actively traded steel ETF on the market as of April 2021 is SLX.
If you want to use a steel ETF to diversify your portfolio, hedge certain risk, or just target an opportunity in the steel industry, researching SLX should be your next step.
SLX - Market Vectors Steel ETF
This steel ETF from Van Eck Global also tracks the NYSE Arca Steel Index. Some of its top holdings include Rio Tinto, ArcelorMittal, Vale and Posco. It has been around since October 2006 and also has listed options (calls and puts).
SLX has been described as tradeable and efficient by some analysts, but it does not offer a fully comprehensive gauge of the entire steel market.
List of Base and Industrial Metals ETFs and ETNs
If you're interested in other metal ETFs, this list could be helpful:
- DBB - Invesco DB Base Metals Fund
- JJM - iPath Bloomberg Industrial Metals Sub Index Total Return ETN
- PICK - iShares MSCI Global Select Metals & Mining Producers ETF
- REMX - VanEck Vectors Rare Earth/Strategic Metals ETF
- RJZ - Rogers International Commodity Index Metals ETN
- SLX - VanEck Vectors Steel ETF
- XME - SPDR S&P Metals & Mining ETF
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.