These are not the best of times for materials stocks and the
In the first quarter, the Materials Select Sector SPDR (NYSE:
) gained 4.8 percent. While that does not sound terrible, it is
less than half the 10.5 percent returned by the SPDR S&P 500
). XLB's performance also makes it the worst of the nine sector
In fact, seven of the nine sector SPDRs offered double-digit
first-quarter returns with only the Technology Select Sector SPDR
) joining XLB in the single-digit club. Still, XLK's 5.4 percent
first-quarter gain is far better than XLB's performance.
Unfortunately for materials bulls, XLB looks like one of the
better ETFs tracking this sector. Year-to-date, Monsanto (NYSE:
) an DuPont (NYSE:
) are up 9.86 percent and 7.17 percent, respectively. Those
stocks combine for over 21 percent of XLB's weight. XLB has also
been helped by the fact metals miners account for just 17 percent
of the ETF's weight.
Other materials ETFs have not been so fortunate and several
now look imperiled. Take the case of the SPDR S&P Metals
& Mining ETF (NYSE:
). The $609.3 million XME plunged 10.3 percent in the first
quarter and that was before Monday's two percent loss (as of 1:30
PM Eastern time).
XME has an ominous sub-sector mix. Alone, gold miners account
for 10.4 percent of the fund's weight and as if that is not bad
enough, other metals miners account for another 11.6 percent
while coal and consumable fuels names represent 17.3 percent,
according to State Street data
Making matters worse is the fact that last week XME made a
death cross, the technical scenario where a shorter term moving
average crosses below a longer term average. In the case of XME,
its 50-day moving average is now slightly below its 200-day
Speaking of coal stocks, 2013 is proving to be another tough
year for that group. Add in Monday's almost 1.6 percent slide and
the Market Vectors Coal ETF (NYSE:
) is now off 10.2 percent year-to-date. KOL has not made a death
cross yet, but
the chart indicates it may just be a matter of
In another bad sign for KOL, at least four of its top-10
holdings - Joy Global (NYSE:
), Peabody Energy (NYSE:
), Yanzhou Coal (NYSE:
) and Walter Energy (NYSE:
) - reside below their 200-day moving averages. Those stocks
combine for over 21 percent of KOL's weight. If KOL violates
support at $22.50, a return to $20 seems likely.
Things are not much better for global materials names. The
iShares S&P Global Materials Sector Index Fund (NYSE:
) is now down 5.7 percent this year when accounting for Monday's
0.9 percent loss. A 44 percent weight to metals miners has proven
problematic and MXI is now struggling to hold support at its
Additionally, MXI allocates 14.5 percent of its weight to
various securities issued by BHP Billiton (NYSE:
) and Rio Tinto (NYSE:
). Australian central bankers and policymakers have already
acknowledged mining investment there is declining and that the
mining boom will peak later this year, implying upside could be
limited for these stocks and related fare.
Another cause for concern: More than a third of MXI's top-18
holdings have exposure to gold mining. That is not a good thing
when the Market Vectors Gold Miners ETF (NYSE:
) is down 18.4 percent this year.
A possible solution for investors looking to profit the woes
of the materials sector is the ProShares UltraShort Basic
). SMN seeks to deliver twice the daily inverse performance of
the Dow Jones U.S. Basic Materials Sector Index.
That is the index tracked by the iShares Dow Jones U.S. Basic
Materials Sector Index Fund (NYSE:
). If IYM breaks resistance at $52,
a run to $55 could be in the offing.
For more on ETFs, click
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