Under The Hood: Save This ETF For Later

In this moment, materials stocks probably aren't a group most investors want to dance with. Inflation concerns, the end of quantitative easing and slower-than-expected economic growth in China have all rained on the materials parade. That doesn't mean the party is over permanently and when materials stocks regain some of their lost luster, today's “Under The Hood” candidate could prove to be a compelling bet. We're talking about the EGShares Dow Jones Emerging Markets Metals & Mining Titans ETF EMT, an ETF that we covered in October, noting that isn't completely undiscovered, but also saying it isn't home to much fanfare either. Home to 25 stocks and an expense ratio that is on the high side at 0.85%, EMT is beholden to its core as an emerging markets materials play. That means high beta and the need for an extremely cooperative market environment for this fund to go higher. When we first covered EMT, the fund was trading just below $22 and proceeded to run to almost $24. We identified $20 as support and the $21 area is the neighborhood in which EMT currently resides. Note that locating EMT's assets under management is difficult, but calling this a $21 ETF and using average daily volume of 16,110 shares, the fund does trade almost $3.4 million in dollar terms per day and that should be enough to keep it alive for the foreseeable futures. The 8% loss in the past month isn't stunning when considering the pain precious and industrial metals have been experiencing recently and when Brazil, South Africa, China and Russia account for almost 80% of an ETF's weight in a sour environment for materials, we have the recipe for declines. Most investors know EMT's biggest holdings, such as Vale VALE, Gold Fields GFI and Yanzhou Coal YZC. And most know now isn't the time to be running into these names. In other words, EMT is an interesting buy-on-a-dip option. Below all of its critical moving averages, the question is how much more downside is in store. That's the rub and that means EMT is worth watching, but not yet ready for addition to investors' portfolios.