Please ensure Javascript is enabled for purposes of website accessibility

Make Money in Essential Materials the Easy Way

By Selena Maranjian – Updated Apr 6, 2017 at 7:46PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's no need to guess which global materials company will perform best.

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the global-materials industry to thrive as the world economies recover and building and growing activities heat up, the iShares S&P Global Materials (NYSE: MXI) ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in more than a hundred of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The ETF's expense ratio -- its annual fee -- is a relatively low 0.48%.

This ETF has performed reasonably, but it's also very young, with just a few years on the books. It outperformed the market in 2007, 2009, and 2010 and underperformed in 2008. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. With a very low turnover rate of 4%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. PotashCorp (NYSE: POT), the fertilizer giant, roughly doubled in value, as investors expect farmers to keep needing to boost their yields with fertilizer. (Over the past five years, PotashCorp's revenue has grown at an average annual rate of almost 14%.) Freeport McMoRan Copper & Gold (NYSE: FCX) gained more than 80% on the strength of valuable metals. Global construction in developing nations and recovering nations such as Japan should keep copper and other metals in demand. Dow Chemical (NYSE: DOW) gained about 61%, with investors hopeful about its growing focus on higher-margin chemical specialties, thanks to its purchase of Rohm & Haas.

Other companies didn't add as much to the ETF's returns last year but could have an effect in the years to come. Gold specialists Barrick Gold (NYSE: ABX) and Newmont Mining (NYSE: NEM), for example, gained 8% and lost 6%, respectively, over the past year, as the surging price of gold took a breather. Barrick is more attractive to some because of its diversification into copper and silver.

The big picture
Demand for basic materials isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.

ETFs can help you find the way to better investing results. To find some great ETF investing ideas, take a look at The Motley Fool's special free report, " 3 ETFs Set to Soar During the Recovery ."

Longtime Fool contributor Selena Maranjian holds no position in any company mentioned. Check out her holdings and a short bio. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

DuPont de Nemours, Inc. Stock Quote
DuPont de Nemours, Inc.
DOW
Newmont Corporation Stock Quote
Newmont Corporation
NEM
$41.25 (-2.94%) $-1.25
Barrick Gold Corporation Stock Quote
Barrick Gold Corporation
GOLD
$14.48 (-3.91%) $0.59
Freeport-McMoRan Inc. Stock Quote
Freeport-McMoRan Inc.
FCX
$26.68 (-5.89%) $-1.67
Nutrien Stock Quote
Nutrien
POT
iShares Trust - iShares Global Materials ETF Stock Quote
iShares Trust - iShares Global Materials ETF
MXI
$67.59 (-3.50%) $-2.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.