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Sector ETFs For Exposure To Materials, Real Estate And Utilities

Published 30/12/2021, 06:20 pm
US500
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D
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PLD
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EXC
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SO
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SHW
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AMT
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DUK
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NEM
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PSA
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APD
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FCX
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ECL
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EQIX
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NEE
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XLB
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CCI
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VAW
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VPU
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VNQ
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REZ
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SCHH
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RSPM
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RSPU
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XLU
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FUTY
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LIN
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FREL
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XLRE
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We conclude our four-part ETF exposure review of the 11 sectors of the S&P 500 with today's post.

The first article presented the Communication Services, Consumer Staples and Consumer Discretionary sectors. The second piece covered Energy, Financials, and Healthcare. And the third post looked at the Industrials And Information Technology Stocks.

Today, we turn to the Materials, Real Estate and Utilities sectors.

1. Materials

Metrics from the U.S. Federal Reserve highlight:

"At 102.3% of its 2017 average, total industrial production in November was 5.3% above its year-earlier level and at its highest reading since September 2019."

The Materials sector mainly includes firms that supply commodities or rely on raw materials in manufacturing and industrial production. According to the Organization for Economic Co-operation and Development (OECD), we are seeing "unprecedented growth in demands for raw materials worldwide, driven in particular by the rapid industrialization of emerging economies and continued high levels of material consumption in developed countries."

Investors who want to access businesses in the construction, chemicals, mining, packaging, paper, or steel industries could research the Materials Select Sector SPDR® Fund (NYSE:XLB). The fund was launched in December 1998 and has more than $8.2 billion under management.

XLB Weekly Chart

XLB, which has 28 holdings, follows the Materials Select Sector Index. Around 70% of the assets are in the top 10 names. In terms of sub-sectors, we see chemicals (69.23%), metals and mining (13.84%), containers and packaging (11.57%), and construction materials (5.36%).

Among the leading names in XLB are: industrial gas and chemical groups Linde (NYSE:LIN) and Air Products and Chemicals (NYSE:APD), paint and coating materials giant Sherwin-Williams (NYSE:SHW), leading miners Freeport-McMoRan (NYSE:FCX) and Newmont Goldcorp (NYSE:NEM), and cleaning and sanitizing group Ecolab (NYSE:ECL).

In the past 52 weeks, XLB is up more than 24.5%. It hit a record high in recent days. Its current price supports a dividend yield of 1.63%. Trailing P/E and P/B ratios are 17.40x and 3.43x, respectively. Despite the run-up in price, we remain bullish on the sector.

Interested readers could also consider two other sectoral ETFs:

  • Vanguard Materials Index Fund ETF Shares (NYSE:VAW)
  • Invesco S&P 500® Equal Weight Materials ETF (NYSE:RTM)

2. Real Estate

As the U.S. Congressional Research Service (CRS) points out:

"Real estate and the housing market play an important role in the U.S. economy. At the individual level, roughly 65% of occupied housing units are owner occupied.... At the aggregate level, housing accounts for a significant portion of all economic activity."

The Real Estate Select Sector SPDR® Fund (NYSE:XLRE) invests in real estate management companies and equity real estate investment trusts (REITs). However, the fund excludes Mortgage REITs (mREITs).

XLRE Weekly Chart

XLRE, which has 29 holdings, was first listed in October 2015. The top 10 stocks comprise more than 60% of net assets of $6.1 billion.

American Tower (NYSE:AMT), Prologis (NYSE:PLD), Crown Castle International (NYSE:CCI), Equinix (NASDAQ:EQIX), and Public Storage (NYSE:PSA) are among the leading names in the fund.

So far in the year, XLRE has returned 39.7%, and the dividend yield stands at 2.1%. Given inflationary pressures, most analysts remain bullish on the sector. However, P/E and P/B ratios of 46.29x and 4.36x point to frothy valuation levels. Readers could consider investing at the $48 level.

Four other related ETFs to analyze:

  • Fidelity® MSCI Real Estate Index ETF (NYSE:FREL)
  • Vanguard Real Estate Index Fund ETF Shares (NYSE:VNQ)
  • iShares Residential and Multisector Real Estate ETF (NYSE:REZ)
  • Schwab U.S. REIT ETF™ (NYSE:SCHH)

3. Utilities

The S&P utilities sector has been in the limelight due to the transition to alternative energy sources. The Utilities Select Sector SPDR® Fund (NYSE:XLU) invests in electric, gas and water utilities, as well as energy traders and power producers in the U.S.

XLU Weekly Chart

XLU has 28 holdings and was first listed in December 2018. Net assets are well over $13 billion. The top names in the fund include NextEra Energy (NYSE:NEE), Duke Energy (NYSE:DUK), Southern (NYSE:SO), Dominion Energy (NYSE:D), and Exelon (NASDAQ:EXC).

YTD, the ETF is up more than 12.8%. The current price supports a dividend yield of 2.8%. Trailing P/E ratio is 27.60x. Interested readers might consider waiting for a pullback toward the $68 level.

Finally, three other sectoral ETFs to put on your radar would include:

  • Vanguard Utilities Index Fund ETF Shares (NYSE:VPU)
  • Fidelity® MSCI Utilities Index ETF (NYSE:FUTY)
  • Invesco S&P 500® Equal Weight Utilities ETF (NYSE:RYU)

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