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Get Your Materials Fix With These Natural Resources ETFs


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Forget Stock-Picking In This Sector, Try Natural Resources ETFs Instead

Natural Resources ETFRegardless of how the broader market is acting, chances are, natural resources ETFs and the stocks that call these funds home will provide a pretty good tell on the investment community’s overall sentiment. As a high-beta sector, the natural resources group usually outperforms the broader market on the way, but the other edge of that sword is that these stocks are usually severely punished when the market succumbs to selling pressure.

Still, allure of natural resources ETFs is too compelling to ignore and that is true for both short-term traders and investors with longer-term outlooks. Active traders can use natural resources ETFs to capture big moves intraday or over just a few days, while longer-term investors can eschew stock-picking in favor of ETFs as a way of tapping into favorable forecasts for global economic (when that theme returns.)

With that, not all natural resources ETFs are created and it pays to look under the hood at the ones you’re considering before jumping in.

The Big Boys Of The Natural Resources ETF Universe

If there is such a thing as a “conservative” natural resources ETF, the Materials Select Sector SPDR (NYSE: XLB) would fit the bill. XLB is the oldest ETF in this genre and that status has allowed the fund to accumulate nearly $1.7 billion in assets under management. With a meager expense ratio of just 0.2%, XLB is home to familiar names such as DuPont (NYSE: DD), Freeport McMoRan (NYSE: FCX) and Monsanto (NYSE: MON). In other words, this is a high-beta ETF intimately tied to the performance of the broader economy and equity market.

For different approach to the natural resources ETF theme, investors may want to take a look at the iShares S&P North American Natural Resources Index Fund (NYSE: IGE). With over $1.9 billion in AUM, IGE is bigger than XLB, but its expense ratio is more than double at 0.48%. Plus, oil names such as Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) account for nearly 60% of IGE’s weight, making this more an oil ETF than materials ETF.

Another natural resources ETF to consider is the Vanguard Materials ETF (NYSE: VAW), though this fund does many of the same things as XLB with a slightly higher expense ratio of 0.24%.

Go Global With Natural Resources ETF

It would be a mistake to assume that all natural resources ETF are U.S.-focused in their approach and it would also be a mistake to assume this is the only way to invest in this sector. In fact, the world’s largest mining companies are based outside of the U.S. One of the best ways to get global resources exposure is with the iShares S&P Global Materials ETF (NYSE: MXI). Top holdings in MXI include BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RIO) and Vale (NYSE: VALE), the world’s three largest mining companies, respectively.

Another international play drills down on a specific niche in the natural resources arena and that is the Market Vectors Coal ETF (NYSE: KOL). While many of the top U.S. coal companies are found among KOL’s holdings, this highly volatile natural resources offers significant international exposure and is easily the best bet for investors looking for a play on rising coal prices.

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