Why Materials And Mining ETFs Are Riding Higher

Things have been going great for materials industry this year for a host of reasons. Several corners like mining, chemical, and oil and energy are showing promise this year. One of the biggest materials ETFs S&P 500 Materials Sector SPDR (XLB - Free Report) has gained 10.4% this year,while the fund suffered a lot in 2018 and is still down 7.4% in a year’s time. The space is now hovering around a one-month high and deserves a special mention for rallying on Feb 20.

Let’s take a look what’s driving material and mining ETFs.

U.S.-China Trade Optimism

China is one of the biggest consumers of materials. The fate of the one of the key companies in the space, DowDuPont (DWDP), is closely associated with the U.S.-China trade war. Though management believes that DowDuPont “has experienced little impact from China's tariffs on U.S. petrochemicals because the company can supply China and Asia through its non-U.S. operations,” some investors remain skeptical.

Tariffs are also expected to increase the company’s cost structure to some extent. The company also faced pressure on its agriculture business as China has started purchasing more soy beans from Brazil and imposed a 25% tariff on U.S. soybeans. Thus, stronger cues of improvement in the U.S.-Sino trade relation this year helped material stocks to rally. DowDuPont, a major stock in most materials ETFs, saw shares gaining 3% on Feb 20 on hopes of trade deal.

Optimistic Company-Specific News

Praxair, the wholly owned subsidiary of Linde plc (LIN - Free Report) , another major holding of materials ETFs, announced an expansion on Feb 11. The expansion entails Praxair to double the capacity of its plant in Neosho, MO.

On the other hand, several asset management companies started taking interest in DowDuPont. Assenagon Asset Management S.A. boosted its stake in DowDuPont by 1,905.9% in Q4, according to its most recent 13F filing. Advisors Asset Management upped its position in shares of DowDuPont by 4.8% in Q2 and now owns 272,035 shares of the company’s stock after purchasing an incremental 12,478 shares in Q4. Legacy Bridge LLC bought a new stake in DowDuPont in Q4.Bogart Wealth LLC, Douglass Winthrop Advisors LLC and Stock Yards Bank & Trust Co. lifted its position in shares of DowDuPont by 46.5%, by 0.3% and by 0.9% in Q4, respectively.

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