Should You Invest in the Materials Select Sector SPDR ETF (XLB)?

Investing

Published: July 18, 2023 10:36 pm

Launched on 12/16/1998, the Materials Select Sector SPDR ETF (XLB) is a passively managed exchange traded fund designed to provide a broad exposure to the Materials – Broad segment of the equity market.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Investor-friendly, sector ETFs provide many options to gain low risk and diversified exposure to a broad group of companies in particular sectors. Materials – Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 14, placing it in bottom 13%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $5.97 billion, making it one of the largest ETFs attempting to match the performance of the Materials – Broad segment of the equity market. XLB seeks to match the performance of the Materials Select Sector Index before fees and expenses.

The Materials Select Sector Index seeks to provide an effective representation of the materials sector of the S&P 500 Index.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.10%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.97%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund’s holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Materials sector–about 100% of the portfolio.

Looking at individual holdings, Linde Plc (LIN) accounts for about 19.60% of total assets, followed by Air Products And Chemicals Inc. (APD) and Freeport-Mcmoran Inc. (FCX).

The top 10 holdings account for about 61.14% of total assets under management.

Performance and Risk

Year-to-date, the Materials Select Sector SPDR ETF return is roughly 8.22% so far, and is up about 17.97% over the last 12 months (as of 07/18/2023). XLB has traded between $67.32 and $85.21 in this past 52-week period.

The ETF has a beta of 1.07 and standard deviation of 20.99% for the trailing three-year period, making it a medium risk choice in the space. With about 32 holdings, it has more concentrated exposure than peers.

Alternatives

Materials Select Sector SPDR ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XLB is a reasonable option for those seeking exposure to the Materials ETFs area of the market. Investors might also want to consider some other ETF options in the space.

SPDR S&P Global Natural Resources ETF (GNR) tracks S&P Global Natural Resources Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index. SPDR S&P Global Natural Resources ETF has $3.37 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $7.29 billion. GNR has an expense ratio of 0.40% and GUNR charges 0.46%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
Materials Select Sector SPDR ETF (XLB): ETF Research Reports

Air Products and Chemicals, Inc. (APD): Free Stock Analysis Report

Freeport-McMoRan Inc. (FCX): Free Stock Analysis Report

Linde PLC (LIN): Free Stock Analysis Report

SPDR S&P Global Natural Resources ETF (GNR): ETF Research Reports

FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR): ETF Research Reports

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