Materials Sector Gains Steam In Q3: 5 Best ETFs & Stocks

The materials sector has become the hottest trade of this quarter. Though the sector tends to be the most sensitive to global economic growth expectations, it has been outperforming other sectors, just trailing the consumer discretionary. Notably, the S&P 500 Materials Sector Index climbed 12.4% compared with a gain of 13.2% for the S&P 500 Consumer Discretionary Index.

The strong performance came on the back of Fed’s super-dovish view. In its latest policy meeting, Chairman Jerome Powell kept U.S. interest rates near zero and pledged to keep rates at lower levels until the end of 2023. Lower rates have put pressure on the U.S. dollar that has made dollar-denominated materials cheap for foreign investors, raising demand for products that these companies sell. As the sector is heavily dependent on interest rates for capital expenditures, lower rates are a boon.

Additionally, greater demand from China, rising commodity prices, and improving industrial activities added to the strength of the sector. In particular, the industrial sector has been recovering from the pandemic though at a slower pace. Output increased in spring and early summer as factories reopened.

Further, the broad market sell-off early in the month, triggered by technology sell-off, has made the sector‘s valuation compelling. This has encouraged investors to buy at a bargain. However, the trade war continues to loom on the sector’s profitability, given its heavy dependence on international trade. Additionally, the dollar has shown some strength in the latest trading sessions on a safe haven demand amid market turmoil.

Given this, we have highlighted five materials ETFs and stocks that have outperformed so far this quarter:

Global X Lithium & Battery Tech ETF (LIT - Free Report) – Up 25%

The product provides global exposure to a broad range of firms engaged in lithium mining, refining and battery production by tracking the Solactive Global Lithium Index. It holds 42 securities in its basket with AUM of $752 million and expense ratio of 0.75%.

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