LIN - IYM: Basic Materials ETF Is Competitive But Not Superior

2024-07-15 19:06:39 ET

Summary

• IYM is 1/10 the size of peer XLB, and there are many good reasons for that.
• Concentrating on the metals and mining industry within the basic materials sector can outperform the broader materials sector.
• We don't see an urgent use for IYM and rate it as a sell.

Introduction

The iShares U.S. Basic Materials ETF ( IYM ), is a passively managed exchange-traded fund that tracks the Russell 1000 Basic Materials RIC 22.5/45 Capped Index. As per the fund's prospectus:

"IYM is a straightforward large-cap sector fund that tracks a vanilla, market-cap-weighted index that provides exposure to the basic material industry of the US market, as classified by the ICB sector framework. Regulatory capping targets are applied at each quarterly rebalance such that single issuer weights are capped at 22.5% and the aggregate weight of all companies exceeding 4.5% weight is capped at 45%. Instead of replicating the index, the fund uses representative sampling to track the index and may also hold cash and cash equivalents, money market funds, and derivatives including futures, options and swap contracts up to 20% of the portfolio to maximize investment results. Prior to September 20, 2021, the fund tracked the Dow Jones U.S. Basic Materials Index."

For further details see: