Material ETFs Rise On Solid Q1 Earnings

With the bulk of Q1 earnings now behind us, the materials sector has been adding to the overall optimism after industrial products, consumer discretionary and technology. This is especially true as total earnings from 97.9% of the sector’s total market capitalization reported so far are up 16.2% on a 5.4% revenue growth.

Though the earnings beat ratio of 63.2% is one of the lowest for the S&P 500 sectors, revenue surprises seem impressive with a beat ratio of 78.9%. In particular, the upside was driven by some of the top players in the diversified chemical industry – Dow Chemical (NYSE:DOW) , DuPont (NYSE:DD) , Praxair (NYSE:PX) and Air Products & Chemicals (NYSE:APD) – that came up with both earnings and revenue surprises. However, LyondellBasell Industries (NYSE:LYB) missed earnings (read: 4 Top Sector ETFs & Stocks to Outperform in Q1 Earnings).

Earnings in Focus

The largest U.S. chemical maker Dow Chemical maintained its long streak of earnings beat for the fourteenth quarter. Earnings per share came in at $1.04 cents, trumping the Zacks Consensus Estimate by a nickel and improving from the year-ago figure of 89 cents. Revenues climbed 23% year over year to $13.2 billion and surpassed our estimate of $12.37 billion. Despite the solid results, the stock lost nearly 2% since the earnings announcement on
April 27.

DuPont, the world's second-largest seed maker, also kept its earnings surprise streak alive for the seventh quarter with earnings per share of $1.64. This represents a strong beat as the Zacks Consensus Estimate was pegged at $1.38. Earnings grew 30% from $1.26 a year ago. Revenues rose 5% year over year to $7.74 billion and edged past our $7.54 billion estimate. Following the earnings announcement on April 25, DuPont shares climbed 2.2%.

Industrial gas giant, Air Products & Chemicals, surpassed our earnings estimate by a nickel and the revenue estimate by $151 million. Another industrial gas producer and supplier Praxair also topped our estimates on both fronts. Earnings per share of $1.37 were 4 cents ahead of the Zacks Consensus Estimate while revenues of $2.73 billion beat our estimates by $98 million. Both the stocks gained 4% and 3.5%, respectively, following the earnings releases on April 27.

While the chemical maker LyondellBasell disappointed with an earnings miss by 7 cents, revenues were ahead of the Zacks Consensus Estimate by $553 million. Shares of LyondellBasell plunged 3.8% since the earnings announcement on April 28.

ETFs in Focus

Given the upbeat results, material ETFs that have the top 10 holdings in these chemical titans performed well over the past 10 days. Below, we highlight them in details (see: all the Materials ETFs here):

Materials Select Sector SPDR XLB

The most popular material ETF follows the Materials Select Sector Index. This fund manages about $3.8 billion in its asset base and trades in volumes as heavy as around 5 million. The ETF charges 14 bps in fees per year from investors. In total, the fund holds about 27 securities in its basket with DOW and DD taking the top two spots, with nearly 12% allocation each and the other in-focus three securities making up for 15.1% share. In terms of industrial exposure, chemicals dominates the portfolio with 73.4% share while containers & packaging, and metals & mining round off the top three positions.

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 $938 million and charges 44 bps in fees and expenses. Volume is good as it exchanges around 274,000 shares a day. DOW and DD occupy the top two positions in the basket, with nearly 11.6% of assets each, while PX, APD and LYB collectively make up for 16.1%. 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 (read: Steel ETF Declines as Tax Ruling Disappoints).

Vanguard Materials ETF VAW

This fund has amassed about $2 billion in its asset base and offers exposure to 123 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio while volume is high at 133,000 shares. Here, DOW and DD form the top two firms, accounting for nearly 8% share each while the other three firms make up for a combined 11.3% of assets. Chemicals makes up for nearly three-fifths of the portfolio, while container & packaging and steel offer a nice mix in the portfolio.

Fidelity MSCI Materials Index ETF FMAT

This fund provides exposure to 118 materials stocks with AUM of $213.6 million. This is done by tracking the MSCI USA IMI (LON:IMI) Materials Index. Here too, DD and DOW are the top two firms with over 8% allocation each, while PX, APD and LYB account for 11.6% share. Chemicals accounts for 66.9%, while container & packaging, and metals & mining round off the top three spots with a double-digit exposure each. The ETF has 0.08% in expense ratio while volume is good at more than 106,000 shares a day.


Conclusion

The trend is likely to continue given that the sector has a solid Zacks Rank in the top 13%. Additionally, material ETF IYM has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating while VAW and XLB have Zacks ETF Rank of 2 or ‘Buy’ rating. Meanwhile, FMAT has a Zacks ETF Rank of 3 or ‘Hold’ rating.

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E.I. du Pont de Nemours and Company (DD): Free Stock Analysis Report

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

Praxair, Inc. (PX): Free Stock Analysis Report

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

LyondellBasell Industries NV (LYB): Free Stock Analysis Report

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

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