Mining Industry (Ferrous & Non Ferrous)
Factors including population growth, urbanization in the Asian
countries and the increasing requirements of the developed
countries have led to increased demand for minerals and metals. The
metals & mining industry addresses this ever-rising demand. The
metal industry is divided into two broad parts: ferrous (steel,
iron and alloys of iron ) and non-ferrous (metals that do not
contain an appreciable amount of iron such as aluminum, copper,
lead, nickel, tin, titanium and zinc, and alloys like brass).
3 ETF Winners from No Taper Shocker
The Mining-Ferrous & Non Ferrous industry has historically been
highly cyclical and is highly susceptible to economic conditions.
This is particularly due to the cyclical nature of its main
customers: the automotive, construction, machinery and equipment
industries. The industry has been facing challenges off late due to
fall in commodity prices. Lingering Euro-zone sovereign debt
crisis, economic stagnation or slow growth in developed economies
and a cooling of emerging market economies have taken a toll on the
To maintain their margins in the falling commodity prices scenario,
mining companies have stayed afloat by curtailing production,
aggressively cutting costs, and abandoning or postponing expansion
plans. These companies are reviewing their portfolios to identify
underperforming assets and shut down or divest these high cost and
non-core assets. Industry consolidation, automation technology,
owner-operated mines and investment in energy assets are some steps
that the companies are taking to mitigate the impact of rising
Cost inflation in the sector is expected to remain a headwind for
metal and mining companies over the next several years, driven by a
number of factors viz. labor, energy, ore grades, currencies,
supply constraints and taxes. Persistent recessionary conditions in
Europe will have residual effects in other parts of globe. This
synchronized global economic slowdown is the biggest headwind for
the metals space at present. (Read:
3 Forgotten ways to play mining sector with
However, the long-term picture remains a lot more promising for the
mining industry on the back of ongoing industrialization in China,
India and in other developing economies. Growth in the United
States will be supported by strong momentum in the auto sector and
recovery in construction markets. The auto sector will not only
trigger demand for steel but will also boost demand for aluminum
as the automobile market is becoming increasingly
aluminum-intensive, benefiting from its recyclability and
light-weight properties. However, the Euro-zone crisis remains an
ETFs to Tap the Sector
An ETF approach can help to spread out assets among a variety of
companies and reduce company-specific risk at a very low cost.
There are currently two ETFs available to play this sector. (See:
All Materials ETFs
SPDR S&P Metals & Mining (
Launched in Jun 2006, XME seeks to replicate the S&P Metals and
Mining Select Industry Index. The S&P Metals & Mining
Select Industry Index represents the metals and mining sub-industry
portion of the S&P Total Market Index.
With AUM of $619 million, XME is the largest and most popular fund
in the metals and mining space. It has a trading volume of roughly
3.3 million shares a day, suggesting little or no extra cost in the
form of bid/ask spreads. The ETF is a low-cost
choice, charging a net expense ratio of 35 basis points a
year, while the dividend yield is 1.67% currently.
The fund currently holds 40 stocks in its basket, with a
concentrated focus on small caps with large caps making up about 9%
of assets. It puts only 33.8% of assets in the top 10 holdings with
weightage of around 3% each. From a commodities perspective, the
product is heavily weighted toward steel with 36% sector weightage,
followed by diversified metal and mining (21%), coal and consumable
fuels (17%), precious metals (11%), gold (8%), and aluminum (7%).
Among individual holdings, top stocks in the ETF include
Cliffs Natural Resources Inc.
Walter Energy, Inc..
Carpenter Technology Corp.
(CRS) with asset allocation of 3.75%, 3.57% and 3.52%,
iShares MSCI Glbl Metals & Mining Prdcrs
The ETF seeks to match the price and yield performance of MSCI ACWI
Select Metals & Mining Producers Ex Gold & Silver
Investable Market Index. This index measures the equity
performance of companies in both developed and emerging markets
that are primarily involved in the extraction and production of
diversified metals, aluminum, steel and precious metals and
minerals, excluding gold and silver.
Launched in Jan 2012, the fund has so far attracted AUM of $238
million. It has a trading volume of roughly 6,783 shares a day. The
ETF is currently charging a net expense ratio of 39 basis points a
year, with a dividend yield of 2.04%.
The fund currently holds 260 stocks with 99% sector weightage
toward basic materials. The fund allocates nearly 53% of the assets
in the top 10 firms, which suggests that company-specific risk is
somewhat high, as the top 10 holdings dominate half of the returns.
Among individual holdings, top three stocks in the ETF include
BHP Billiton Limited
BHP Billiton plc
Rio Tinto plc
(RIO) with asset allocation of 12.5%, 7.6% and 7.42%, respectively.
The fund is widely diversified across various countries, and UK
tops the list, holding 20.87% of the fund, followed by Australian
and American securities. These three nations make up for nearly 51%
of the assets.
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ISHARS-M GL M&M (PICK): ETF Research
SPDR-SP MET&MIN (XME): ETF Research Reports
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