The Materials Select Sector SPDR (XLB) is the worst laggard among the nine sector SPDRs ETFs this year, but improved performances for XLB and rival materials funds could be ahead as activist investors cozy up to some of these funds’ top holdings.
Last month, it was reported that hedge fund manager Nelson Peltz, founder of Trian Fund Management, had amassed a sizable position in Dow component DuPont (DD), something Peltz neither immediately confirmed nor denied. Despite the lack of confirmation from Peltz, the news was enough to send shares of DuPont soaring, providing some help to XLB and materials ETFs along the way. DuPont is now XLB’s largest holding at a weight of 10.8 percent. [Hedgie Does for XLB What he Couldn't for XLP]
A similar rumor pertaining to Dow Chemical (DOW), the largest U.S. chemical maker, could also lift XLB and its rivals. Last Friday, shares of Dow rose almost 3.1% on volume that was more than double the daily average to touch a new 52-week high as unusual options activity in the stock sparked speculation an activist investors may be eying the company.
More than 89,000 calls to buy the stock changed hands Friday, the most since February, roughly seven times the number of puts, with the September $39 calls accounting for most of the activity, report Nikolaj Gammeltoft and Simon Casey for Bloomberg.
Dow trades at a discount to rival large-cap chemicals makers and the company has previously said it may sell three businesses with $6 billion in combined revenue if it fails to improve profit margins, Bloomberg reported. The piece did not identify what activist investor or investors may be interested in Michigan-based Dow. [Right Place, Right Time for This Materials ETF]
Shares of Dow are up 15.7% this year, which sounds good until measured against the 30.2% gain offered by DuPont. Dow is XLB’s third-largest holding behind DuPont and Monsanto (MON) with a weight of 8.8%. The two stocks also combine for 18.3% of the iShares U.S. Basic Materials ETF’s (IYM).
Air Products (APD), another top-10 holding in both XLB and IYM, is another stock that has recently drawn the interest of an activist investor as Bill Ackman’s Pershing Square Capital recently unveiled a $2.2 billion stake in that company.
Materials Select Sector SPDR
ETF Trends editorial team contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
- Basic Materials Industry
- Nelson Peltz
- Dow Chemical