The materials sector has performed decently in 2021. The S&P 500 Materials sector has gained 26.2% in the past year. In addition, the space is expected to remain strong as improving labor market conditions, growing consumer confidence, accelerated coronavirus vaccine rollout and the passage of the much-awaited $1.2-trillion infrastructure bill are pointing toward a faster recovering economy.
According to the White House, the bipartisan Infrastructure Investment and Jobs Act would allocate $550 billion in new money to transportation projects, the utility grid and broadband (as stated in a CNBC article). The legislation also provides $110 billion for roads, bridges and other major projects along with $66 billion for passenger and freight rail and $39 billion for public transit.
The bill will also channelize $65 billion into broadband, a priority for many lawmakers after the pandemic brought into notice the unequal division in Internet access facilities for households and students across the nation (per a CNBC article). The bill will also invest $55 billion in water systems, including initiatives to replace lead pipes.
Commenting on the bill, President Biden has said that it would “create millions of jobs, turn the climate crisis into an opportunity, and put us on a path to win the economic competition for the 21st Century,” as mentioned in a CNBC article.
The coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors. The progress in coronavirus vaccine rollout presents a strong case,favoring a faster return to normalcy and economic recovery.
Moreover, the emergency use authorization (EUA) for Pfizer Inc.’s (PFE) antiviral COVID-19 pill, PAXLOVID, has relaxed concerns regarding Omicron to some extent. Pfizer can begin delivering PAXLOVID in the United States on an immediate basis. In November, Pfizer had informed about signing an agreement with the U.S. government to supply 10 million treatment courses of PAXLOVID. The delivery will be completed in 2022. The FDA had also granted a nod to Merck’s antiviral pill for COVID-19.
Material ETFs to Bet On
Against this backdrop, let’s look at some top-ranked material ETFs that can outperform in the coming weeks:
iShares U.S. Basic Materials ETF IYM
iShares U.S. Basic Materials ETF tracks the Russell 1000 Basic Materials RIC 22.5/45 Capped Gross Index and holds 37 stocks in its basket. It has AUM of $763.9 million and charges 41 basis points (bps) in fees and expenses. The product is heavily skewed toward specialty chemicals and commodity chemicals, with the two sectors making more than 30% of the portfolio. VAW carries a Zacks ETF Rank #2 (Buy).
The Materials Select Sector SPDR Fund XLB
The most-popular material ETF follows the Materials Select Sector Index. The Materials Select Sector SPDR Fund manages $8.18 billion in its asset base. The ETF charges 12 bps in fees per year from investors. In total, the fund holds about 28 securities in its basket. In terms of industrial exposure, chemicals dominate the portfolio with around 69% share, while metals & mining and containers & packaging round off the top three positions. XLB carries a Zacks ETF Rank #1 (Strong Buy) (read: 7 ETF Predictions for 2022).
Vanguard Materials ETF VAW
Vanguard Materials ETF has amassed about $4.15 billion in its asset base and offers exposure to 117 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio. Specialty chemicals and industrial gases take the largest share at 29.8% and 18.2%, respectively, while others offer single-digit exposure. VAW carries a Zacks ETF Rank #2.
Fidelity MSCI Materials Index ETF FMAT
Fidelity MSCI Materials Index ETF provides exposure to 119 materials stocks, with AUM of $530.4 million. This is done by tracking the MSCI USA IMI Materials 25/50 Index. The ETF has 0.08% in expense ratio. FMAT carries a Zacks ETF Rank #1.
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Materials Select Sector SPDR ETF (XLB): ETF Research Reports
Fidelity MSCI Materials Index ETF (FMAT): ETF Research Reports
Vanguard Materials ETF (VAW): ETF Research Reports
iShares U.S. Basic Materials ETF (IYM): ETF Research Reports
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Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
