Building Your Portfolio with a Basic Materials Fund

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

The Materials Select Sector SPDR Fund (XLB) tracks a market-cap-weighted index of U.S. basic materials companies. The fund includes only the materials components of the S&P 500.

This index is primarily composed of companies involved in industries such as chemicals, construction materials, containers & packaging, metals & mining, and paper & forest products. XLB is a massive, liquid exchange-traded fund (ETF) that invests in basic materials companies from the S&P 500.

Its limited selection universe means it is heavily concentrated, with just a few holdings making up a huge chunk of the portfolio. XLB generally favors large-cap holdings, but still offers reasonable exposure to the space.

The fund is one of the most popular in the U.S. materials segment, with a huge asset base and extraordinary trading volume. It has excellent potential for occasional traders and larger investors alike.

Among the fund’s top holdings are Linde PLC (NYSE: LIN), DuPont de Nemours (NYSE: DD), Ecolab Inc. (NYSE: ECL) and Air Products & Chemicals, Inc. (NYSE: APD). Its primary sectors are Commodity Chemicals (53.71%), Specialty Chemicals (8.62%), Non-Paper Containers (6.80%), Paper Packaging (6.35%) and Construction Materials (5.71%).

Chart courtesy of StockCharts.com

The fund has $4.54 billion in assets under management, a $40.98 billion average weighted market cap and 29 holdings. Its average spread is 0.02% and expense ratio is 0.13%, meaning it is relatively inexpensive to hold compared to other exchange-traded funds (ETFs). XLB pays a $0.35 dividend, giving it a 1.90% yield. The fund currently trades just below $60.

XLB provides exposure to the Basic Materials sector, as well as large-cap stocks. However, each fund has its own investing goals and, as always, it is crucial for every person to conduct his or her own due diligence to decide whether or not it makes sense personally.

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As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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