ETF Showdown: Materials Melee
Here's a guide to the materials sector ETFs out in the market.
The materials sector accounts for just 3.5% of the S&P 500's
No two materials ETFs are exactly the same, but the major funds tracking producers of basic materials such as DuPont (NYSE:DD) and FreeportMcMoRan (NYSE:FCX) have a lot in common. The iShares Dow Jones US Basic Materials Sector Index Fund (NYSEARCA:IYM), Materials Select Sectors SPDR (NYSE:XLB), and Vanguard Materials ETF (NYSE:VAW) are not triplets, but one is not vastly different from the other.
These are standard, passively managed cap-weighted funds. That approach has worked well at least in terms of attracting assets. In the case of XLB, the ETF
Just look at how the First Trust Materials AlphaDEX Fund (NYSE:FXZ) stacks up against XLB. XLB uses the traditional cap-weighted methodology found in so many ETFs. There is nothing wrong with this approach as it keeps costs down, but it does mean a stock's size is often the most important criteria for inclusion in the ETF.
Regarding size, it is not surprising to see Monsanto and DuPont each accounting for 10.4% of XLB's weight. Freeport and Dow Chemical (NYSE:DOW) combine for 16% of the fund's weight. That is four stocks representing a 37% of one ETF.
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