Material ETFs Gaining On Solid Q2 Earnings

With the Q2 earnings season in high gear, almost all sectors are seeing busy trading sessions. In particular, the basic materials sector has been in the spotlight with earnings of about 49% of the total market capitalization that have reported so far up 42% on 11.7% revenue growth. Though earnings growth has been the fourth highest so far, the earnings and revenue beat ratio of 80% and 60%, respectively, seems uninspiring.

Let’s dig into the earnings report of some of the well-known players in the sector:

Earnings in Focus

U.S. chemical giant DowDuPont DWDP reported earnings per share of $1.37, beating the Zacks Consensus Estimate by 4 cents and improving 20 cents from the year-ago quarter. Revenues rose 17% year over year to $24.2 billion and edged past the estimated $23.67 billion.

Industrial gas giant, Air Products & Chemicals APD, surpassed the Zacks Consensus Estimate by 11 cents but lagged the same for revenues by $32 million. Earnings and revenues were up 18% and 8%, respectively, from the year-ago quarter. Another industrial gas producer and supplier Praxair PX topped both revenue and earnings estimates. Earnings per share of $1.72 came ahead of the Zacks Consensus Estimate by a couple of cents while revenues of $3.06 billion edged past the estimated $3.0 billion. On a year-over-year basis, earnings and revenues increased 18% and 8%, respectively.

Chemical maker LyondellBasell Industries LYB came up with earnings of $3.34 per share, crushing the Zacks Consensus Estimate of $2.90. Revenues of $10.2 billion also exceeded the estimated $9.1 billion and grew 21.5% year over year.  

ETFs in Focus

Given the upbeat results, material ETFs that have the top 10 holdings in these chemical titans performed well in the past 10 days, gaining nearly 2%. All these have a Zacks ETF Rank #3 (Hold), suggesting potential upside in the coming weeks. Below, we highlight them in details:

iShares U.S. Basic Materials ETF IYM

This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 49 stocks in its basket. The fund has AUM of $621.6 million and charges 44 bps in fees and expenses. Volume is good as it exchanges around 121,000 shares a day. The in-focus firms collectively make up for 43.4% of the assets. The product is heavily skewed toward diversified chemical and specialty chemical with around one-fourth of the portfolio each while industrial gases, commodity chemicals, and steel round off the top five.

Materials Select Sector SPDR XLB

The most popular material ETF follows the Materials Select Sector Index. This fund manages about $4.7 billion in its asset base and trades in volumes as heavy as around 6.5 million. The ETF charges 13 bps in fees per year from investors. In total, the fund holds about 24 securities in its basket with the in-focus four firms accounting for 42.7% share. In terms of industrial exposure, chemicals dominate the portfolio with 71.1% share while containers & packaging, and metals & mining round off the top three positions.

Vanguard Materials ETF VAW

This fund has amassed about $2.8 billion in its asset base and offers exposure to 121 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio while volume is high at 132,000 shares. Here, the in-focus firms make up for a combined 31.5% share in the basket. Specialty chemicals and diversified chemical take the largest share at 23.2% and 21.2%, respectively while others offer single-digit exposure each.

Fidelity MSCI Materials Index ETF FMAT

This fund provides exposure to 120 materials stocks with AUM of $263.3 million. This is done by tracking the MSCI USA IMI Materials Index. The in-focus firms account for a combined 26.2% share. Chemicals accounts for 66%, while metals & mining, and container & packaging round off the top three spots with a double-digit exposure each. The ETF has 0.08% in expense ratio while volume is good at around 97,000 shares a day.

Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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