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S&P 500 Sector ETFs: A Look Under the Hood, Part 4

Charles Sizemore
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For Part 1, see S&P 500 Sector ETFs: A Look Under the Hood, Part 1
For Part 2, see S&P 500 Sector ETFs: A Look Under the Hood, Part 2
For Part 3, see S&P 500 Sector ETFs: A Look Under the Hood, Part 3

Materials Select Sector SPDR (XLB)

Next on the list is the Materials Select Sector SPDR ETF (XLB). XLB’s performance over its life has been quite good, roughly doubling the return of the S&P 500 since inception in 1998.

This sector ETF is not at all what it sounds like. When you hear “materials,” you expect a portfolio full of mining companies. But the materials sector ETF is more diverse than that. Chemical companies EI Du Pont De Nemours And Co (DD) — which most know better as DuPont — and Dow Chemical Co (DOW) are the first and third largest holdings, at 11.5% and 8.9% of the portfolio, respectively. Agribusiness giant Monsanto Company (MON) fills in the gap at No. 2, with 9.5% of the portfolio.

Paper products company International Paper Co (IP) and paint seller Sherwin-Williams Co (SHW) also make the top ten holdings. The largest mining company in the portfolio —Freeport-McMoRan Inc (FCX) — makes up only 3% of the portfolio.

In XLB, you get a solid portfolio of global industrial companies. You distinctly do not get a collection of volatile mines at risk of copper price swings.

Utilities Select Sector SPDR (XLU)

And finally, we get to the Utilities Select Sector SPDR ETF (XLU). The utilities sector was one of the real standouts of the last year, up about 16%. And for calendar year 2014, the utilities sector was the strongest performer of all sectors, due in no small part to the massive decline in bond yields.

As the most “bond-like” of all sectors, utilities tend to move with bond yields. This was a disaster in 2013, the year of the “taper tantrum.” And it’s shaping up to be a disaster this year, as the utilities sector is the only S&P 500 sector currently in the red year-to-date. XLU is down more than 6% since the start of the year.

If you’re looking for a portfolio of boring, regulated basic utility companies like Duke Energy Corp (DUK) or Dominion Resources, Inc. (D), then XLU is the ETF for you.

But if you’re specifically hunting for high yield, you might want to keep looking. After the run XLU had, its dividend yield has fallen all the way to just 3.3%.

Charles Lewis Sizemore, CFA, is the chief investment officer of investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays.


This article first appeared on Sizemore Insights as S&P 500 Sector ETFs: A Look Under the Hood, Part 4

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