ETF Showdown: A Materials Matchup

Let's be honest: Few investors think that what materials and mining companies do is a "sexy" business. They don't make smartphones, tablets or operate in the high-growth e-commerce or social networking spheres. Yep, all that is true, but materials stocks, on the other hand, are sexy. High beta produces great intraday moves and the potential for rapid gains (or losses) as the big names in the materials and mining sectors are often found making headlines. And all that does not include the fact these are emerging plays without having to directly buy a particular emerging market. There's no shortage of materials ETFs to take a look at, but the result of today's ETF Showdown, might be a surprise to some. Let's get on with this materials matchup. The Materials Select Sector SPDR Fund XLB is squaring off against the iShares S&P Global Materials Index Fund MXI, an ETF we've highlighted several times in the past. Here's the key difference between these ETFs: XLB is a North American play while MXI is globally diverse. Want some exposure to Freeport McMoRan FCX and DuPont DD? XLB will cover you with a combined weight of over 23% to those names. Put another way, two stocks dominate XLB, which only holds 29 stocks to begin with. On the other hand, MXI is far more diverse. The ETF holds 121 stocks with BHP Billiton BHP, the world's largest mining company, the top holding at about 12%. Freeport and DuPont also factor into MXI's top-10, but their weights are far behind the likes of Rio Tinto RIO and Vale VALE. At the country level, the U.S. and Canada combine for a third of MXI's weight, but the fund is still more geographically diverse than XLB. XLB has its high points though, including an expense ratio of 0.2% compared to 0.48% for MXI. So what is an investor to do? Consider approaching XLB and MXI this way: The biggest mining companies in the world are typically based outside of the U.S. and you probably want one of BHP, Rio and Vale in your materials portfolio. Of course, there's nothing wrong with a less sexy name like DuPont and Freeport's copper dominance is noteworthy, too. Let's do the math: If you wanted to load up on Vale, BHP, Freeport and DuPont, 100 shares of each would cost about $23,000 give or take a few bucks. By comparison, you can get 200 shares of XLB and 200 shares of MXI for less than $23,000, plus you now have a truly global materials portfolio. Rare as it is, we have a draw in this week's ETF Showdown.