The Basic Materials sector ranks third out of the 11 sectors as detailed in our 4Q20 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Basic Materials sector ranked fourth. It gets our Attractive rating, which is based on an aggregation of ratings of the 155 stocks in the Basic Materials sector. See a recap of our 3Q20 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 116). 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.
Figure 1: ETFs with the Best & Worst Ratings – Top 5
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Two ETFs (SLX, JHMA) are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums.
Figure 2: Mutual Funds with the Best & Worst Ratings
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
FXZ is the top-rated Basic Materials ETF and FIJFX is the top-rated Basic Materials mutual fund. FXZ earns an Attractive rating and FIJFX earns a Neutral rating.
PSCM is the worst rated Basic Materials ETF and FMFAX is the worst Basic Materials mutual fund. They both earn an Unattractive rating.
155 stocks of the 2,850-plus 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.
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. 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
Sources: New Constructs, LLC and company filings
Figure 4: Separating the Best Mutual Funds from the Worst Mutual Funds
Sources: New Constructs, LLC and company filings
This article originally published on Oct. 13, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
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