Should You Invest in the Materials Select Sector SPDR ETF?

Looking for broad exposure to the Materials - Broad segment of the equity market? You should consider the Materials Select Sector SPDR ETF (ARCA:XLB), a passively managed exchange traded fund launched on 12/16/1998.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Investor-friendly, sector ETFs provide many options to gain low risk and diversified exposure to a broad group of companies in particular sectors. Materials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 6, placing it in top 38%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $5.63 billion, making it one of the largest ETFs attempting to match the performance of the Materials - Broad segment of the equity market. XLB seeks to match the performance of the Materials Select Sector Index before fees and expenses.

The Materials Select Sector Index seeks to provide an effective representation of the materials sector of the S&P 500 Index.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.09%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.88%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Materials sector--about 100% of the portfolio.

Looking at individual holdings, Linde Plc (NASDAQ: LIN) accounts for about 21.97% of total assets, followed by Sherwin Williams Co (NYSE: SHW) and Freeport Mcmoran Inc (NYSE: FCX).

The top 10 holdings account for about 66.61% of total assets under management.

Performance and Risk

Year-to-date, the Materials Select Sector SPDR ETF has added about 6.77% so far, and is up roughly 21.61% over the last 12 months (as of 05/29/2024). XLB has traded between $74.46 and $93.06 in this past 52-week period.

The ETF has a beta of 1.10 and standard deviation of 19.28% for the trailing three-year period, making it a medium risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.

Alternatives

Materials Select Sector SPDR ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLB is a great option for investors seeking exposure to the Materials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

SPDR S&P Global Natural Resources ETF (ARCA:GNR) tracks S&P Global Natural Resources Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (ARCA:GUNR) tracks Morningstar Global Upstream Natural Resources Index. SPDR S&P Global Natural Resources ETF has $3.43 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $6.45 billion. GNR has an expense ratio of 0.40% and GUNR charges 0.46%.

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