2023-09-18 10:02:52 ET
Summary
- SPDR® S&P Metals and Mining ETF is an exchange-traded fund that provides exposure to the metals and mining industry, which is poised to benefit from infrastructure spending and renewable energy demand.
- The XME ETF is heavily weighted in steel and coal industries, making it more of an industrial play than a precious metals one.
- XME outperforms its peer ETF PICK due to different industry weightings and a lower expense ratio. However, it carries risks such as market volatility and geopolitical factors.
Heavy metal is immortal, but we’re not. - Rob Halford.
As much as I keep stressing that we are in a short-term high-risk environment, there are still plenty of good opportunities for longer-term investors. I'm a fan of the commodity thesis, and think there's a legitimate argument to be made for metals broadly as a sub-sector. Underinvestment combined with, at some point, weakness in the Dollar longer-term should favor the entire asset class.
With that said, the SPDR® S&P Metals and Mining ETF ( XME ) is an exchange-traded fund, or ETF, designed to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P® Metals and Mining Select Industry® Index. XME gives investors exposure to the metals & mining segment of the S&P Total Market Index. It's seeks to track a modified equal-weighted index, providing the potential for industry exposure across large, mid, and small-cap stocks without too much idiosyncratic risk.
Exploring the Metals & Mining Industry
The metals and mining industry plays a critical role in the global economy, supplying the raw materials needed for a wide range of sectors, from construction and manufacturing to technology and energy.
The underlying conditions for the metal and mining industry look largely favorable, especially if you believe China is about to stimulate their economy aggressively (debatable I know). The sector is poised to benefit from a multitude of factors, including increased infrastructure spending, strong demand from emerging markets, and the global push towards renewable energy longer-term.
Holdings & Industry Composition
XME owns 32 stocks from the metals and mining segment. These include companies like Consol Energy, Arch Resources, Peabody Energy, and Nucor.
However, it's worth noting that XME is heavily weighted in steel and coal industries, which alone accounts for 56% of the ETF. This concentration may expose investors to specific risks associated with these sub-sectors. The large allocation to Steel makes it more of an industrial play in the metals space than a precious metals one.
Comparison with Peer ETFs
When considering an investment in XME, it's worth comparing it with other similar ETFs in the market. One notable peer is the iShares MSCI Global Metals & Mining Producers ETF ( PICK ), which I've written about recently as well. When we compare XME to PICK on a relative basis, it's clear XME is the winner, and this largely has to do with industry weightings being different, combined with the equal-weight nature of XME.
While both ETFs aim to provide exposure to the metals and mining sector, there are some other key differences. PICK focuses on global stocks with US-based stocks only accounting for 17% of its total holdings, whereas XME is more U.S.-centric. From a yield perspective, PICK offers a higher dividend yield compared to XME. However, XME has a lower expense ratio, which can be a significant factor for cost-conscious investors.
Risks and Considerations
Investing in XME, like any investment, involves certain risks. These include market risk, sector risk, and non-diversification risk. The ETF's performance may be affected by changes in economic conditions, market fluctuations, and risks inherent in investment in securities markets. Another risk to consider is the ETF's high allocation to the cyclical steel industry. Poor earnings reports from major global steel companies could trigger volatility and downside price action in the fund. Additionally, the fund is subject to geopolitical risks.
Is XME a Good Investment?
XME may be a suitable investment for those seeking exposure to the metals and mining sector and are comfortable with the associated risks. However, the fund's heavy weighting towards steel and coal industries may not appeal to investors looking for a more diversified exposure to the metals and mining sector.
While the underlying conditions for the metal and mining industry look largely favorable, investors should remain mindful of potential market downturns or credit events that could adversely impact these stocks. It's a good fund for what it does, and the tailwinds I do believe are there longer term.
For further details see:
XME: Largely A Steel Play That's Gaining Momentum