Equity mutual funds in the materials sector, sometimes referred to as the basic materials sector, focus on companies involved in the processing, harvesting, or manufacturing of minerals, metals, forests, chemicals, plastics, and other natural resources. The basic materials sector is sensitive to fluctuations in supply and demand because the price of raw materials, such as gold or other metals is usually driven by demand.
There is some crossover between basic materials and the utilities or energy sectors. The major difference is that the materials sector is primarily concerned with the early-stage processing of raw materials and does not usually produce products that go to consumers.
Here, we take a look at three equity mutual funds in the materials sector: Vanguard Materials Index Fund Admiral Shares (VMIAX), Fidelity Select Chemicals Portfolio Fund (FSCHX), and Fidelity Select Materials Portfolio Fund (FSDPX).
1. Vanguard Materials Index Fund Admiral Shares (VMIAX)
One of the most popular index funds in the basic materials category is the Vanguard Materials Index Fund Admiral Shares (VMIAX). Vanguard’s VMIAX tracks the performance of the Morgan Stanley Capital International (MSCI) U.S. Investable Market Materials 25/50 Index, which is made up of large, medium, and small U.S. companies in the materials sector. The VMIAX tends to have a lower expense ratio, which is the cost to run the fund, than many competitors.
Net assets: $5.3 billion as of Dec. 31, 2021
Expense ratio: 0.10% as of Dec. 17, 2021
Yield: 1.55% as of Jan. 31, 2022
To be included, a stock need only be classified as materials by the Global Industry Classification Standard (GICS). However, the top ten holdings listed below represent nearly 50% of the fund’s portfolio weighting.
Linde plc Sherwin-Williams Co. Air Products and Chemicals Inc. Freeport-McMoRan Inc. Ecolab Inc. Newmont Corp. Dow Inc. DuPont de Nemours Inc. PPG Industries Inc. International Flavors & Fragrances Inc.
The fund has had a solid performance over the years, as shown below:
One year: 21.45%Three years: 17.66%Five years: 11.28%
Morningstar gives a four-star rating to this fund, which began on February 11, 2004.
2. Fidelity Select Chemicals Portfolio Fund (FSCHX)
The Fidelity Select Chemicals Portfolio Fund (FSCHX), established on July 29, 1985, focuses on a subset of the materials sector. The fund invests 80% of its assets in the common stocks of companies in the chemical process industry engaged in research, development, marketing, or manufacturing.
Net assets: $784.84 million as of Jan. 31, 2022Expense ratio: 0.78% as of April 29, 2021Yield: .81% as of Dec. 31, 2021
The majority of the fund’s assets reside in the following subsectors as of Dec. 31, 2021:
Specialty Chemicals: 42.32%Industrial Gases: 25.70%Commodity Chemicals: 12.08%Fertilizers & Agricultural Chemicals: 10.83%
Diversified Chemicals: 6.48%
The fund’s top holdings listed below represent nearly 65% of the fund’s portfolio weighting as of Dec. 31, 2021.
Linde PlcSherwin Williams CoDupont De Nemours IncCorteva IncAir Products & Chemicals IncPpg Industries IncInternational Flavors & FragrancesCelanese CorpOlin CorpHuntsman Corp
The fund’s performance over the years is shown below:
One year: 24.83%Three years: 13.25%Five years: 8.55%
The Fidelity Select Chemicals Portfolio Fund received an overall rating of four stars from Morningstar out of 102 funds.
Unlike utilities and energy companies, those in the basic materials sector conduct early-stage processing of raw materials and don’t produce products that go to consumers.
3. Fidelity Select Materials Portfolio Fund (FSDPX)
Another solid option in the materials fund space is the Fidelity Select Materials Portfolio Fund (FSDPX), created on Sept. 29, 1986. The fund invests 80% of its assets in companies involved in raw materials and intermediate goods that manufacture, mine, process, or distribute these goods. The holdings within the FSDPX are primarily the common stocks of mid-sized companies.
Net assets: $639.46 million as of Jan. 31, 2022Expense ratio: 0.80% as of April 29, 2021Yield: .77% as of Feb. 10, 2022
Nearly 70% of fund assets are in basic material equities that reside in the following subsectors as of Dec. 31, 2021:
Specialty Chemicals: 26.53%Industrial Gases: 16.13%Fertilizers & Agricultural Chemicals: 11.09%Commodity Chemicals: 9.06%Copper: 7.52%
Listed below are the top ten portfolio holdings (as of Dec. 31, 2021), which represent nearly 49% of the fund:
Linde PlcSherwin Williams CoFreeport Mcmoran IncAir Products & Chemicals IncEcolab IncTronox Holdings PlcNewmont CorpOlin CorpDupont De Nemours IncCorteva Inc
The performance of Fidelity’s FSDPX over the last few years are listed below:
One year: 31.67%Three years: 21.70%Five years: 11.67%
Morningstar gives the FSDPX fund a three-star rating.