It has been a decent year for the materials sector, though not one that will go down in the record books as being particularly jaw-dropping.
With just a few trading days left in 2013, the Materials Select Sector SPDR (XLB) and the Vanguard Materials ETF (VAW) , two large-cap focused funds, have an average year-to-date, S&P 500-lagging gain of 24.5%.
Investors that have taken on the added risk and volatility that comes along with small-caps in a cyclical sector such as materials have rewarded by the PowerShares S&P SmallCap Materials Portfolio (PSCM) . The often overlooked $21 million PSCM, which is is based on the S&P SmallCap 600 Capped Materials Index, has returned nearly 30% this year. [Embrace These Cyclical ETFs in December]
Like the other PowerShares small-cap sector funds, PSCM was created to be the small-cap answer to large-cap focused ETFs such as the aforementioned XLB and VAW. PSCM joins the PowerShares S&P SmallCap Consumer Staples Portfolio (PSCC) as being one of those small-cap ETFs that is the best in its respective sector this year. [This is 2013's Best Consumer Staples ETF]
Although PSCM is a play on small-cap materials names, a group often thought to be highly speculative, the average market value of the fund’s 40 holdings is $1.34 billion, proving this fund is far from being penny stock-heavy. Nearly 47% of PSCM’s weight is allocated to growth names with the remainder tilted to small-cap value stocks, according to PowerShares data.
PSCM’s top-five holdings – PolyOne (POL), HB Fuller (NYSE:HB), KapStone Paper (KS), Balchem (BCPC) and Schweitzer-Maudit (SWM) – combine for about 28% of the ETF’s weight. After a fee reduction announced earlier this year, PSCM charges 0.29% per year.
Although PSCM tracks small-caps in high-beta cyclical sector, traits that could be seen as a sign of higher valuations, the ETF has a P/E ratio of 25.83 and a price-to-book ratio of just over two. Those numbers compare favorably with the P/E of 29.6 and the price-to-book ratio of almost 4.3 on the iShares Russell 2000 ETF (IWM) .
PSCM has recently been in rally mode, gaining over 10% in the past three month. On Monday, the ETF touched an all-time high on volume that was more than double the daily average.
PowerShares S&P SmallCap Materials Portfolio
Tom Lydon’s clients own shares of IWM.
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