Materials SPDR (ETF) (XLB)

Materials Select Sector Index invests in the materials sector of the Standard and Poors 500 index. The Index includes companies from the chemicals, construction materials, containers and packaging, metals and mining and paper and forest products industry. The past performance of the fund has been good with 18.83% return in the previous year at an expense ratio of 0.24%. It has net asset worth approximately $1.02 billion and is trading at a price to earning multiple hovering around 14.


Global demand for hybrid seeds and increasing population favor production of food grain. Of late the decreasing corn acreage comes as a bad news for the fertilizers and agricultural chemical companies such as Monsanto. E.I Dupont that tops the list in terms of capital allocation is loosing market share for its Pioneer brand corn seed and not able to meet the demand due to lack of production capacity. The restructuring it had undergone would take time to give positive economic returns whereby it is going to its root of being a scientific company concentrating more on innovation.


The specialty chemicals business sells more on the basis of performance specification rather than on price. Though the huge research and development, and marketing expenses hurt the margins they are more stable with continuous demand and unhurt by cyclical changes. With housing starts on the decrease and car manufacturers cutting production due to the rise in inventory, it can cause a major problem for the metals sector dominated by steel and aluminums companies. Outlooks for the paper packaging, metal and glass container looks good favored by new innovations. Legislations, taxations or restrictions that prohibits usage of certain raw materials or require certain disposal treatment comes at a big disadvantage and is sending mixed signals to the same.


Majority of the firm’s performance is vulnerable to the construction and automotive sector. Moreover they depend on oil and natural gas that form a significant part of input cost, which is on the verge of rising due to geopolitical tensions. With exports forming a huge part of their revenues thereby increasing the currency risk and not much to benefit in the year 2007.