DowDuPont's Q4 Results Drag Material ETFs Down

DowDuPont Inc. (NYSE:DWDP) , created from the merger of Dow Chemical and DuPont on Aug 31, reported strong fourth-quarter results with both earnings and revenue beat. Earnings per share of 83 cents and revenues of $20.07 billion outpaced the Zacks Consensus Estimate of 67 cents and $19.37 billion, respectively.

The U.S. chemicals producer realized more than $800 million in annual cost synergy during the quarter. It now expects $3.3 billion in total cost synergy from the merger, slightly more than the previous projection of $3 billion (read: ETFs to Buy as U.S. Manufacturing Hits 13-Year High).

The company is moving ahead with its plans to split the new company into three independent companies — Materials Science, Agriculture and Specialty Products. The breakup is expected to take place in 14 to 18 months from now. The Materials Science business will likely be spun off by the end of the first quarter of 2019, while Agriculture and Specialty Products will get their own identity by June 1, 2019.

Market Impact

Shares of DWDP dropped 2.7% on the day following the earnings announcement. The stock has a Zacks Rank #3 (Hold) and a VGM Style Score of F. It belongs to a solid industry, which is placed at the top 19% in terms of ranking among more than 250 Zacks industries.

Given this, ETFs having a large allocation to this chemical giant will be in focus in the days ahead. The drop in DWDP shares has led to sluggish trading in these ETFs as well. Below, we have highlighted them in detail (see: all the Materials ETFs here):

iShares U.S. Basic Materials ETF IYM

This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 50 stocks in its basket. The fund has AUM of $1.1 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges around 159,000 shares a day. DowDuPont occupies the top position in the basket making up for one-fourth of the portfolio. The product is heavily skewed toward the chemical segment with three-fourth of the portfolio, while industrial gases, steel, and metals & mining receive minor allocation each. It lost 1.2% on the day and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Materials Select Sector SPDR XLB

The most-popular material ETF follows the Materials Select Sector Index. This fund manages about $5.3 billion in its asset base and trades in volumes as heavy as around 4.5 million. The ETF charges 13 bps in fees per year from investors. In total, the fund holds about 25 securities in its basket with DWDP taking the top spot, holding nearly 23.3%. In terms of industrial exposure, chemicals dominates the portfolio with 72.2% share while containers & packaging, and metals & mining round off the top three positions. XLB shed 1.4% on the day has a Zacks ETF Rank #2 with a Medium risk outlook (read: 3 Top-Ranked Sector ETFs to Buy).

iShares Edge MSCI Multifactor Materials ETF MATF

This ETF follows the MSCI USA Materials Diversified Multiple-Factor Capped Index and targets companies with the potential to outperform the broad U.S. healthcare sector. Holding 23 stocks in its basket, DWDP is the top firm with 20.9% allocation. From an industrial look, chemicals account for 60.1% of assets while paper packaging, steel, industrial gases and many others also receive minor allocation. The product has accumulated $5.3 million in its asset base and trades in a paltry volume of 1,000 shares per day on average. It charges 35 bps in annual fees and lost 1.5% post DWDP results. The fund has a Zacks ETF Rank #3.

Fidelity MSCI Materials Index ETF FMAT

This fund provides exposure to 119 materials stocks with AUM of $368.4 million. This is done by tracking the MSCI USA IMI (LON:IMI) Materials Index. Here too, DWDP is the top firm with 18% allocation. Chemicals accounts for 66.4%, while metals & mining, and container & packaging round off the top three spots with a double-digit exposure each. The ETF has 0.08% in expense ratio while volume is moderate at 83,000 shares a day. It was down 1.3% on the day and has a Zacks ETF Rank #2 with a Medium risk outlook (read: What Lies Ahead for DowDuPont ETFs in Q4 Earnings).

Vanguard Materials ETF VAW

This fund has amassed about $2.5 billion in its asset base and offers exposure to 120 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio while volume is moderate at 92,000 shares. Here too, DowDuPont is the top firm accounting for nearly 17.5% share. Chemicals makes up for nearly three-fifths of the portfolio, while container & packaging and steel offer a nice mix in the portfolio. The ETF has lost 1.2% and a Zacks ETF Rank #2 with a Medium risk outlook.

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SPDR-MATLS SELS (XLB): ETF Research Reports

FID-MATRLS (FMAT): ETF Research Reports

VIPERS-MATERIAL (VAW): ETF Research Reports

ISHARS-US BA MA (IYM): ETF Research Reports

ISHRS-EMS M MAT (MATF): ETF Research Reports

Dow Chemical Company (NYSE:DOW) (The) (DWDP): Free Stock Analysis Report

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