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VAW, XLB, LIT, GDX, and XME are the five best materials ETFs for 2022.
Best Materials ETFs: Overview
Materials ETFs consist mostly of companies engaged in extracting and producing natural resources.
These commodities and commodity-related businesses tend to perform well during periods of high inflation as investors turn to real-world assets and businesses around those assets, producing free cash flows in the present day.
These exchange-traded funds allow investors to gain indirect exposure to commodities without having to venture into the futures market.
The five funds below are the best materials ETFs:
- Vanguard Materials ETF (VAW)
- Materials Select Sector SPDR Fund (XLB)
- Global X Lithium & Battery Tech ETF (LIT)
- VanEck Gold Miners ETF (GDX)
- SPDR S&P Metals & Mining ETF (XME)
In general, VAW and XLB provide conventional exposure to the materials sector.
LIT offers access to companies involved in the mining, processing, and application of a specific type of material: lithium.
Then we have the GDX and XME funds that predominantly invest in miners – exclusively gold miners in the case of GDX.
Now let’s review the details of each of these exchange-traded funds.
Best Materials ETFs
#1. Vanguard Materials ETF (VAW)
- 1-Year Performance: +12.55%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 1.45%
- AUM: $3.98 billion
- 3 Month Avg. Volume: 109,162
- Number of Holdings: 119
- Inception Date: 2004
The Vanguard Materials ETF passively invests in broad-cap U.S. equities in the materials sector.
More specifically, VAW consists of companies in a wide range of commodity-related manufacturing industries, such as chemicals, construction materials, glass, metals, minerals, mining companies, producers of steel, and more.
We believe the Vanguard Materials ETF is the most comprehensive materials fund on the market.
It consists of 100+ equities across all market cap tiers, provides exposure to 10+ subindustries within the materials sector, and is cost-efficient.
VAW Top Holdings:
- Linde (LIN) 13.14%
- Sherwin-Williams Company (SHW) 5.72%
- Air Products and Chemicals (APD) 4.99%
- Freeport-McMoRan (FCX) 4.36%
- Newmont Corporation (NEM) 3.90%
#2. Materials Select Sector SPDR Fund (XLB)
- 1-Year Performance: +11.74%
- Expense Ratio: 0.12%
- Annual Dividend Yield: 1.55%
- AUM: $7.37 billion
- 3 Month Avg. Volume: 7,858,688
- Number of Holdings: 29
- Inception Date: 1998
The Materials Select Sector SPDR Fund provides exposure to the materials sector of the S&P 500 Index.
Generally speaking, these 29 stocks are the largest and most popular materials stocks, a reality that brings us to the main difference between XLB and VAW: the S&P 500 Index.
XLB holdings are all well-established, large-cap incumbents in the materials sector. They are in the S&P 500 Index for a reason.
VAW’s methodology doesn’t discriminate by S&P 500 inclusion, which allows it to include a wider range of equities.
However, you’ll notice that the top holdings in XLB and VAW are the same. They only differ by weighting, which is a byproduct of XLB’s more strict inclusion criteria.
In addition to considering your unique investment objectives, deciding between XLB and VAW essentially boils down to your comfort with concentration.
Choosing XLB makes you more concentrated in fewer names, but those names tend to be more stable than the 119 that make up VAW.
All things considered, don’t get caught picking up pennies in front of a steam roller.
Both of these are great options if you’re seeking exposure to the materials sector, and both will perform well if materials equities perform well.
XLB Top Holdings:
- Linde (LIN) 15.96%
- Sherwin-Williams Company (SHW) 6.74%
- Freeport-McMoRan (FCX) 6.66%
- Air Products and Chemicals (APD) 5.57%
- Newmont Corporation (NEM) 5.25%
#3. Global X Lithium & Battery Tech ETF (LIT)
- 1-Year Performance: +9.22%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 0.13%
- AUM: $4.99 billion
- 3 Month Avg. Volume: 1,002,508
- Number of Holdings: 42
- Inception Date: 2010
The Global X Lithium & Battery Tech ETF invests in the full lithium cycle through battery production from mining and refining the metal.
While LIT is primarily invested in the materials sector, it is industry-agnostic.
About 21% of your invested assets will find themselves in the information technology sector, 17% in industrials, and 17% in consumer discretionary.
This is a result of Global X’s unconstrained approach to investing and its effort to invest in the full value chain of lithium.
LIT is not a broad-based materials ETF by any means. It is aggressively invested in one specific commodity, which it believes to have high growth potential in the larger secular trend of clean energy technologies.
This is why we have also identified LIT as one of the best electric vehicle ETFs and a top clean energy ETF.
LIT Top Holdings:
- Albemarle Corporation (ALB) 12.23%
- TDK Corporation (6762:TKS) 6.38%
- Tesla (TSLA) 5.63%
- Contemporary Amperex Technology Co (300750:SHE) 4.87%
- BYD Company Limited (1211:HKG) 4.65%
#4. VanEck Gold Miners ETF (GDX)
- 1-Year Performance: +5.38%
- Expense Ratio: 0.52%
- Annual Dividend Yield: 0.55%
- AUM: $13.42 billion
- 3 Month Avg. Volume: 22,619,684
- Number of Holdings: 58
- Inception Date: 2006
The VanEck Gold Miners ETF invests in companies involved in the gold mining industry.
GDX holdings are worldwide, with 43% of net assets in Canada, 21% in the U.S., 12% in Australia, 8% in Brazil, and the remaining spread across China, Tanzania, the U.K., Kyrgyzstan, and Peru.
An investment in GDX is an investment in the infrastructure of the commodity gold, which is a scarce rock with a relatively inelastic supply.
Before 2009, gold was the world’s best monetary good. The effort required to produce more of it allowed the existing supply of it to maintain its value, at least relative to other monetary goods such as shells and salt.
While it has been relatively demonetized, gold tends to perform well during inflationary periods as investors turn to hard assets.
When demand for the commodity rises, the demand for the services built around that commodity increases, which is good for GDX companies and investors that own GDX.
Buying GDX instead of the underlying asset feels like a Buffett-ism strategy to reduce volatility.
Whatever the case may be, GDX is one of the best gold ETFsavailable and certainly a materials ETF to consider.
GDX Top Holdings:
- Newmont Corporation (NEM) 16.55%
- Barrick Gold Corporation (GOLD) 12.77%
- Franco-Nevada Corporation (FNV) 8.97%
- Wheaton Precious Metals Corp (WPM) 6.23%
- Newcrest Mining Limited (NCM) 4.49%
#5. SPDR S&P Metals & Mining ETF (XME)
- 1-Year Performance: +35.01%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.66%
- AUM: $2.49 billion
- 3 Month Avg. Volume: 4,733,720
- Number of Holdings: 33
- Inception Date: 2006
The SPDR S&P Metals & Mining ETF invests in 33 companies that belong to one of the following sub-industries: aluminum, coal, and consumable fuels, copper, diversified metals and mining, gold, precious metals and minerals, silver, and steel.
As you can surmise, XME provides more diversified exposure to the entire mining industry than GDX, which exclusively focuses on gold.
XME consists of metals and mining companies of all sizes. The average market cap of an XME holding is around $10 billion.
Additionally, XME is a modified equal-weighted ETF, meaning that all 33 of its holdings receive a relatively similar allocation.
Like LIT and GDX, the SPDR S&P Metals & Mining ETF narrows into a specific part of the materials sector. It is a promising option for those seeking access to miners.
XME Top Holdings:
- Peabody Energy Corporation (BTU) 6.64%
- Alcoa Corporation (A.A.) 6.07%
- Arch Resources (ARCH) 5.25%
- Allegheny Technologies (ATI) 5.12%
- Century Aluminum Company (CENX) 4.45%
Alternatives to the Best Materials ETFs
Here are some other materials ETFs to consider:
- FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR)
- Vaneck Junior Gold Miners ETF (GDXJ)
- SPDR S&P Global Natural Resources ETF (GNR)
- iShares U.S. Home Construction ETF (ITB)
- iShares MSCI Global Metals & Mining Procedures ETF (PICK)
- Global X Silver Miners ETF (SIL)
- Global X Uranium ETF (URA)
- Global X Copper Miners ETF (COPX)
There are countless materials ETFs to choose from. You shouldn’t have any problem finding one that tracks a specific sub-industry or commodity.
Best Materials ETFs: Frequently Asked Questions
Is the Vanguard Materials ETF a good investment?
The Vanguard Materials ETF provides access to 119 stocks in the materials sector of the economy. A low-cost, diversified materials ETF is a good investment for buy-and-hold investors seeking exposure to commodity-related businesses.
Is there an ETF for building materials?
Yes, the iShares U.S. Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB) are solid ETFs for those looking to invest in building materials.
Bottom Line: Best Materials ETFs
Hopefully, you’re now more familiar with investment options in the materials sector.
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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we selected the best Materials ETFs.
