U.S. Markets closed

CFRA November Focus ETF: Materials Select Sector SPDR (XLB)

This article was originally published on ETFTrends.com.

By Todd Rosenbluth, CFRA

The CFRA Focus ETF for November is Materials Select Sector SPDR (XLB) , which earns our top rating. Unlike some research providers that rely on past performance metrics, CFRA’s ratings focus on the fund’s holdings and costs to provide a more forward-looking approach.

The November-through-April six-month period has historically been a strong one for the S&P 500 Index, rising 6.6% on average since 1994, according CFRA Research, ahead of the 4.1% average in all six-month periods. According to Sam Stovall, Chief Investment Strategist at CFRA, the S&P 500 Materials sector advanced 9.3% on average during the seasonally strong six-month period and outperformed the broader S&P 500 Index 69% of the time.

XLB is the largest diversified ETF for the Materials sector and holds S&P 500 constituents in a market-cap manner. The fund is relatively concentrated with 65% of assets in its top-10 holdings; moreover, six of them are CFRA Buy recommendations, which supports our positive rating on XLB. DuPont de Nemours (DD), LyondellBasell Industries (LYB), Sherwin-Williams (SHW) and PPG Industries (PPG) are some examples of the ETF constituents.

At the sub-industry level, Specialty Chemicals companies (32% of assets) and Industrials Gases (23%) were the largest, followed by Paper Packaging (10%).

Further supporting CFRA’s rating were the fund’s low costs. XLB incurs a modest 0.13% expense ratio and trades approximately six million shares daily with a penny bid/ask spread. The fund also trades with bullish technical tendencies and is above its 200-day moving average.

Though XLB has incurred outflows thus far in 2019 and is lagging the S&P 500 Index, CFRA thinks the history of sector outperformance and the fund’s holdings on a go-forward basis are on the side of investors who seek out this cyclical sector.

Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.