The Basic Materials sector ranks seventh out of the 11 sectors as detailed in our 1Q20 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Basic Materials sector ranked ninth. It gets our Neutral rating, which is based on an aggregation of ratings of the 156 stocks in the Basic Materials sector as of January 11, 2020. See a recap of our 4Q19 Sector Ratings here.
Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Basic Materials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 26 to 120). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Basic Materials sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.
Our Robo-Analyst technology[1] empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings.[2] Only our research utilizes the superior data and earnings adjustments featured by the HBS & MIT Sloan paper, “Core Earnings: New Data and Evidence.” We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Three ETFs (SLX, JHMA, PYZ)) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity
Sources: New Constructs, LLC and company filings
First Trust Materials AlphaDEX® Fund (NYSE:FXZ) is the top-rated Basic Materials ETF and FIJFX is the top-rated Basic Materials mutual fund. FXZ earns an Attractive rating and FIJFX earns a Neutral rating.
iShares U.S. Basic Materials ETF (NYSE:IYM) is the worst rated Basic Materials ETF and Fidelity Advisor® Materials Fund Class A is the worst Basic Materials mutual fund. They both earn an Unattractive rating.
156 stocks of the 2900+ we cover are classified as Basic Materials stocks.
The Danger Within
Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance.
PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND
Analyzing each holding within funds is no small task. Our Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.
Figures 3 and 4 show the rating landscape of all Basic Materials ETFs and mutual funds.
Sources: New Constructs, LLC and company filings
Sources: New Constructs, LLC and company filings