Base metals are critical materials used in a variety of applications, including manufacturing and construction. Following the late 2021 passage of a $1.2 trillion measure designed to repair sagging U.S. infrastructure, investors have become increasingly interested in base metals such as aluminum.
There’s a limited number of aluminum stocks. Fortunately for metals-minded investors, an exchange-traded fund (ETF) offers a compelling opportunity. People interested in aluminum stocks but concerned about the risk of an investment in an individual stock should consider investing in an aluminum ETF. But, just as few aluminum stocks exist, there are few aluminum ETFs. Even so, there are opportunities with base metal ETFs that can provide investors with ample aluminum exposure.
Top Aluminum ETFs to Buy in 2024
| Aluminum ETF | Ticker Symbol | Assets Under Management | ETF Focus |
|---|---|---|---|
| Invesco DB Base Metals Fund | (NYSEMKT:DBB) | $249.7 million | Futures contracts of zinc, aluminum, and copper |
| iShares U.S. Basic Materials ETF | (NYSEMKT:IYM) | $820.0 million | U.S. stocks that produce metals, chemicals, and forestry products |
| SPDR S&P Metals and Mining | (NYSEMKT:XME) | $2.6 billion | Base metals, precious metals, diversified metals, coal, and steel |
1. Invesco DB Base Metals Fund
Offering a more speculative approach, the Invesco DB Base Metals Fund invests in the futures contracts of various base metals including aluminum, zinc, and copper. According to Invesco, the ETF seeks to track the performance of the DBIQ Optimum Yield Industrial Metals Index Excess Return.
Although the Invesco DB Base Metals Fund provides exposure to several other base metals, investors particularly focused on aluminum should be pleased with how it’s weighted in the fund. As of July 2022, aluminum futures represented 33.96% of the fund’s base metals futures contracts; zinc and copper represented 35.31% and 30.37%, respectively.
The 0.77% expense ratio of the DB Base Metals Fund also shouldn’t scare off aluminum investors from considering a position.
2. iShares U.S. Basic Materials ETF
Unlike the DB Base Metals Fund and its focus on futures, the iShares U.S. Basic Materials ETF provides exposure to base metals stocks, as well as other materials such as chemicals and forestry products. The ETF is a less speculative opportunity. According to fund manager BlackRock (BLK -0.68%), the iShares U.S. Basic Materials ETF tries to track the investment results of an index composed of U.S. equities in the basic materials sector.
Investors seeking a more conservative route to obtaining aluminum exposure should be especially interested in the ETF. Since the fund includes other sectors such as chemicals, gold, and paper packaging, investors face less risk from a sharp downturn in the aluminum industry. As of the third quarter of 2022, the ETF had 39 holdings, including leading aluminum stocks. Alcoa (AA -0.39%) represented 1.39% of the holdings; Reliance Steel & Aluminum (RS -6.83%) accounted for 1.69%.
By providing distributions on a quarterly basis, the iShares U.S. Basic Materials ETF offers investors an opportunity to supplement or begin generating passive income. The ETF’s 12-month yield in early September 2022 was 2.05%, enough to cover a low 0.39% expense ratio and still have some leftover cash.
For the three-year period between June 30, 2019, and June 30, 2022, the iShares U.S. Basic Materials ETF has provided investors with a total return of 30.8%.
3. SPDR S&P Metals and Mining
Giving investors a larger exposure to aluminum than the iShares U.S. Basic Materials ETF, the SPDR S&P Metals and Mining ETF has an 11.2% weighting of the base metal. In addition to the usual aluminum suspects such as Alcoa and Reliance Steel & Aluminum, the fund includes Arconic (NYSE:ARNC), Century Aluminum (CENX 1.26%), and Kaiser Aluminum (KALU 1.33%).
Although the ETF has a 0.35% expense ratio -- lower than the iShares U.S. Basic Materials ETF -- its 12-month yield was only 0.85% at the beginning of the third quarter of 2022.
The ETF, which attempts to match the performance of the S&P Metals and Mining Select Industry Index, also provides exposure to precious metals, coal, diversified metals, and steel. The SPDR S&P Metals and Mining ETF had a three-year total return of 58.6% from June 30, 2019, to June 30, 2022, just short of the 60.4% total return of its benchmark index over the same period.
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The bottom line on aluminum ETFs
Instead of looking to unearth a pure-play aluminum ETF -- which doesn’t seem to exist -- investors should be content with the various other ETF choices that offer abundant exposure to the metal. For more aggressive investors who are comfortable with greater risk, the Invesco DB Base Metals Fund offers the opportunity to benefit from spikes in the futures contracts of aluminum, as well as zinc and copper. Conservative investors interested in generating passive income may find the iShares U.S. Basic Materials ETF and the SPDR S&P Metals and Mining ETF to be better opportunities.
