Basic Materials Sector 4Q18: Best and Worst

David Trainer  |

The Basic Materials sector ranks ninth out of the 11 sectors as detailed in our 4Q18 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Basic Materials sector ranked ninth. It gets our Unattractive rating, which is based on an aggregation of ratings of the 157 stocks in the Basic Materials secto. See a recap of our 3Q18 Sector Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Basic Materials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 24 to 119). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Basic Materials sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Our Robo-Analyst technology[1] empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings.[2] We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.

Figure 1: ETFs with the Best & Worst Ratings - Top 5

Image Source: New Constructs, LLC

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

JHMA is excluded from Figure 1 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

Figure 2: Mutual Funds with the Best & Worst Ratings

Image Source: New Constructs, LLC

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

RTM is the top-rated Basic Materials ETF and VMIAX is the top-rated Basic Materials mutual fund. RTM earns an Attractive rating and VMIAX earns a Neutral rating.

XLB is the worst rated Basic Materials ETF and FMFAX is the worst rated Basic Materials mutual fund. XLB earns an Unattractive rating and FMFAX earns a Very Unattractive rating.

157 stocks of the 2850+ we cover are classified as Basic Materials stocks.

The Danger Within

Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Analyzing each holding within funds is no small task. Our Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.

Figures 3 and 4 show the rating landscape of all Basic Materials ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

Image Source: New Constructs, LLC

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds from the Worst Mutual Funds

Image Source: New Constructs, LLC

Sources: New Constructs, LLC and company filings

This article originally published on October 15, 2018.

Disclosure: David Trainer and Kyle Guske receive no compensation to write about any specific stock, sector or theme.

Follow us on Twitter, Facebook, LinkedIn, and StockTwits for real-time alerts on all our research.

[1] Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

[2] Ernst & Young’s recent white paper "Getting ROIC Right" proves the superiority of our holdings research and analytics.

DISCLOSURE: Disclosure: David Trainer and Kyle Guske receive no compensation to write about any specific stock, sector or theme.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Comments

Can the Media Solve the Partisan Conflict?

Andrew McCarthy, Contributing Editor, The National Review; Michael Zeldin, CNN Legal Analyst; Celeste Katz, Senior Political Reporter, Glamour; Silvia Davi, SVP, Contributing Editor, Equities.com; and Doug Simon, CEO, D S Simon Media discuss how the media’s role has shaped the landscape for communicators and what the media is trying to do to reduce discord in society.

Emerging Growth

Singlepoint Inc

SinglePoint Inc is a mobile technology company engaged in mobile payments, mobile giving, and mobile bidding. It operates mobile commerce and communications platform to accept mobile credit card payments.