The materials sector is important to a lot of different industries. It affects construction, manufacturers, metals mining companies, and basically any company that produces a product. Raw materials are essential to the economy.
As investors, the materials sector can also be beneficial to a portfolio. Materials investments can be used to diversify a portfolio, hedge risk, or just increase exposure or take advantage of an opportunity.
So, if you are looking to invest in the materials sector, what better way than with a materials ETF. You won’t have to corner the market on materials companies, nor battle the pricing of a materials index. One ETF transaction can give you instant access to the sector. Of course, no investment is without its disadvantages, and ETFs are no exception. But there are plenty of advantages (like the tax benefits) that make Materials ETFs an attractive investment.
- Materials exchange-traded funds consist of stocks of companies that extract, process, or develop raw materials like metal, chemicals, construction materials, and more.
- There are several materials ETFs available, so you can choose ones that match your interests and industry knowledge.
- When choosing from material ETFs, make sure they match your investment strategy and understand the impact they can have on your portfolio.
To see which funds are a possible fit for your investment strategy, take a look at the list of materials ETFs below.
AXMT: The iShares MSCI ACWI ex-US Materials Sector Index ETF (Recently Closed)
The first materials ETF on this list tracks the MSCI All Country World ex USA Materials Index and includes companies involved with materials production like BHP Billiton, BASF, and Rio Tinto. Metals are the top sector represented in the fund, but it also has securities that represent the chemicals, construction, paper products, and other industries.
CHIM: The Global X China Materials ETF
This ETF correlates with the Solactive China Materials Index and includes securities such as Angang New Steel, Maanshan Iron and Steel, and Shanghai Petro Company. The two sectors represented in CHIM are Chemicals and Metals & Mining.
FXZ: The First Trust Materials AlphaDEX ETF
This fund tracks the StrataQuant Materials Index and includes companies like West Lake Chemical Corporation, Alcoa, and Fastenal Company. The top sectors represented in this ETF are chemicals, metals and mining, and containers and packaging.
IRV: The SPDR S&P International Materials Sector ETF
This ETF follows the S&P Developed Ex-U.S. BMI Materials Sector Index and includes companies like BHP Billiton, Rio Tinto, and BASF. The top sectors represented in the fund are Metals and Mining, Construction Materials, and Chemicals.
IYM: The iShares Dow Jones US Basic Materials ETF
This fund tracks the Dow Jones U.S. Basic Materials Index and includes companies like Du Pont, Praxair Inc, and Dow Chemicals. The top sectors represented in the ETF are chemicals, industrials, and mining.
LGEM: The EGShares Basic Materials GEMS ETF
This fund tracks the Dow Jones Emerging Markets Basic Materials Titans 30 Index and its holdings include Vale Sa ADR, Anglo Gold, and MMC Norilsk Nickel. The top sectors represented in the ETF are Metals & Mining, Chemicals, and Forestry and Paper. And the top countries represented in the fund are India, Mexico, and Indonesia.
MATL: The Direxion Daily Basic Materials Bull 3X Shares ETF
This materials ETF is a 3x leveraged fund, which targets three times the daily return of the S&P Materials Select Sector Index. The top sectors represented are chemicals, industrial gases, and fertilizers.
MATS: The Direxion Daily Basic Materials Bear 3X Shares ETF
Like its counterpart (MATS) this fund seeks a 3x leveraged return on the S&P Materials Select Sector Index. However, MATS also seeks an inverse correlation to the index as well.
PYZ: The Invesco DWA Basic Materials Momentum ETF
This fund correlates with the Dynamic Basic Materials Sector Intellidex Index and some of the top holdings are Eastman Chemical (EMN), CF Industries (CF), and Freeport McMoRan Copper and Gold (FCX).
RTM: The Rydex S&P Equal Weight Materials ETF
This ETF tracks the S&P 500 Equal Weight Index Materials and some of the top sectors represented are chemicals, metals and mining, and containers and packaging. Some of the top holdings in the fund are Eastman Chemical Company, CF Industries, and Owens Illinois.
Equal-weight ETFs may be good for investors who want to invest in both small- and large-cap companies equally.
SBM: The ProShares Short Basic Materials ETF
This fund tracks the Dow Jones U.S. Basic Materials Index but seeks a daily inverse return to the benchmark. The ETF uses derivatives such as swaps to emulate the index, but the index itself includes holdings like Freeport McMoRan, DuPont, and Dow Chemical.
SMN: The UltraShort Basic Materials ProShares ETF
Like SMB, this fund also seeks an inverse return to the Dow Jones U.S. Basic Materials Index, but SMN seeks twice the leveraged return as well.
UYM: The Ultra Basic Materials ProShares ETF
This fund also tracks the Dow Jones U.S. Basic Materials Index but is not an inverse fund like SBM and SMN. However, it does seek a 2x leveraged return to the underlying benchmark.
VAW: The Vanguard Materials ETF
This fund tracks the MSCI US Investable Market Materials 25/50 Index and includes companies like El DuPont, Monsanto, and Dow Chemical in its holdings. Most of the top materials in the fund are chemicals like specialty chemicals, agricultural chemicals (fertilizers), and diversified chemicals. But there are other materials in the fund as well like metals, gases, and gold.
- FMAT: The Fidelity MSCI Materials Index ETF
- JHMA: The John Hancock Multifactor Materials ETF
- MATF: The iShares Edge MSCI Multi-Factor Materials ETF (inactive)
Understand Your Risk
Before you make any trade, make sure you research each fund individually. Watch how they react to different market conditions. And consider talking to your broker or a financial professional if you have any questions or need any advice.
No investment is without risk, so make sure you understand the impact of any ETF or your financial strategy or your portfolio. However, once you conduct your due diligence, hopefully, you can accomplish some of your investing goals with materials ETFs.
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.