America appears to be on the brink of a construction renaissance. Despite the counter-intuitive trend of rising interest rates fueling an increase in building, the Commerce Department reports a consistent surge in construction spending post-pandemic.
Much of this expenditure is being channeled into non-residential and commercial projects, indicative of the pent-up demand generated during the pandemic years. The recently passed infrastructure bill by Congress may also be contributing to this increase in demand for building materials.
The need for materials to sustain this growth remains strong. Investors seeking to capitalize on this construction upturn can consider the exchange-traded fund (ETF), the Materials Select Sector SPDR Fund (XLB), which encapsulates this active sector.
XLB tracks a market-cap-weighted index of U.S. basic materials companies. The fund includes only the materials components of the S&P 500. And with a low cost expense ratio of 0.10%* and over $5 billion in assets under management, XLB offers easy access to the sector.
This sector is key to the economy and advisors and investors should consider XLB as a portfolio sleeve alongside other sectors. Building is always happening and now there could be an upward trend.
The companies comprising XLB are big players in the industry. Steel, timber, and masonry are core components. Top holdings** are Linde with a weighting of 20.44%, followed by Air Products and Chemicals (7.08%), paint maker Sherwin-Williams (6.88%), and miner Freeport-McMoRan (6.17%).
The rest of the top holdings include Ecolab, Nucor, Dow, Corteva, DuPont de Nemours, and PPG Industries.
Investment Opportunities Amidst Construction Boom
The diversity of the holdings within the fund, ranging from miners to paint manufacturers, provides investors with a well-rounded portfolio within a single fund. This allows for potential upside during an industry upswing.
Taking into account recent industry challenges such as supply chain disruptions and environmental regulations, investing in XLB could prove advantageous. The ETF's holdings are well-positioned to navigate these issues, with many companies adopting innovative solutions to mitigate supply chain disruptions and aligning their operations with stringent environmental regulations.
For instance, companies like Sherwin-Williams and Freeport-McMoRan are implementing sustainable practices in their operations, which not only comply with environmental regulations but also lead to operational efficiencies.
Undoubtedly, the building materials sector plays a pivotal role in the economy. As such, advisors and investors should consider adding XLB to their portfolios, given the persistent relevance of the building industry and it’s potential.
In conclusion, the XLB ETF presents a unique investment opportunity that capitalizes on the current construction landscape. It’s a solid choice for those looking to invest in a diverse portfolio of basic materials companies. Now is the time to consider the Materials ETF, XLB, to take advantage of the potential construction boom.
DISCLAIMER: This is a work of research and should not be taken as investment or financial advice. Therefore, Select Sector SPDRs or the publisher is not liable for any decision made based on the publication.
About the Company:
Select Sector SPDR ETFs offer flexibility and customization opportunities. Many investors have similar outlooks, but no two are exactly alike. Select Sector SPDR ETFs let investors select the sectors that best meet their investment goals.
* Ordinary brokerage fees apply
** Holdings, Weightings & Assets as of 8/31/23 subject to change
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. The index is heavily weighted toward stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. The S&P 500 Index figures do not reflect any fees, expenses or taxes. An investor should consider investment objectives, risks, fees and expenses before investing.
One may not invest directly in an index.
Transparent ETFs provide daily disclosure of portfolio holdings and weightings
All ETFs are subject to risk, including loss of principal. Sector ETF products are also subject to sector risk and nondiversification risk, which generally will result in greater price fluctuations than the overall market. Diversification does not eliminate risk.
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information, call 1-866-SECTOR-ETF (732-8673) or visit www.sectorspdrs.com. Read the prospectus carefully before investing.
ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is distributor for the Select Sector SPDR Trust.
Company: Select Sector SPDRs
Contact: Dan Dolan*
Address: 1290 Broadway, Suite 1000, Denver, CO 80203
Country: United States
*Dan Dolan is a Registered Representative of ALPS Portfolio Solutions Distributor, Inc. ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is the distributor for the Select Sector SPDR Trust.
SEL006877 EXP 10/31/23
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