Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some global materials stocks to your portfolio, the SPDR International Materials Sector ETF (NYSE: IRV) 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 lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a relatively low 0.50 %. The fund is very small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in. It recently yielded a respectable 2%.
This ETF has underperformed the market over the past three years, but much of the world has been mired in an economic slump in that period. 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 low turnover rate of 1%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
Why materials?
Our global economic slump won't last forever, and there are already signs of life here and there. Thus, the materials industry is poised to prosper as construction and infrastructure projects get under way and manufacturing kicks into higher gear. Materials companies based in emerging markets have even more potential, as those economies tend to grow more briskly.
It's been a tough few years, but a few global materials companies had strong performances over the past year. Canadian fertilizer specialist Agrium (NYSE: AGU), for example, soared 44%, and still has a current and forward P/E of 11. It more than doubled its dividend in 2012, and is the world's largest agricultural retailer, with more than 1,200 stores. It has been growing, in part, via savvy acquisitions.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Diversified miner Teck Resources (TECK -0.20%), for instance, was roughly flat. The company has suffered recently from weakness in coal and zinc, along with some declines in copper pricing, but my colleague Christopher Barker thinks that has just made it more of a bargain.
Fertilizer giant PotashCorp (POT), down 3%, has recently tripled its dividend and yields about 2% now. Management expects potash shipments to rise in the near future, and bulls are looking for contracts with China, Israel, and India, among other locations. Potash may get a boost in demand due to troubles in corn fields, too, as farmers seek fertilizer to improve their yields. (Fertilizer bears, though, worry about oversupply and lower prices in the future.) The company has a lot going for it and should benefit as natural gas prices rise, making Potash's offerings more attractive relative to nitrogen fertilizers.
Goldcorp (GG), meanwhile, fell 20%. The price of gold has been falling lately, but Goldcorp remains one of the more profitable gold miners and some see it as attractive at recent levels, comparing favorably against peers. It does face challenges, however, such as weather and mine safety.
The big picture
Demand for materials, globally, isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
