Invesco S&P SmallCap Materials ETF (NASDAQ: PSCM)

Latest news for Invesco S&P SmallCap Materials ETF (NASDAQ:PSCM)

Invesco S&P SmallCap Materials ETF

Basic Materials

Consumer Cyclical

Industrials

Consumer Defensive

Energy

The fund generally will invest at least 90% of its total assets in the securities of small-capitalization U.S. basic materials companies that comprise the underlying index. These companies are principally engaged in the business of producing raw materials, including paper or wood products, chemicals, construction materials, and mining and metals. The fund is non-diversified.

Ati Inc

Carpenter Technology Corp

Balchem Corp

Sealed Air Corp.

Hb Fuller Co

Alpha Metallurgical Resources Inc.

Innospec Inc

Warrior Met Coal Inc

Sensient Technologies Corp

Sylvamo Corp

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PSCM

It&#39;s tied with energy for the smallest weight in the S&amp;P 500 at 2.57%, but the oft-overlooked materials sector is on the rise.

3 ETFs For The Suddenly Marvelous Materials Sector

PSCC

PSCE

PSCI

PowerShares ETF Trust Lux Nanotech Portfolio

SCHH

How To Avoid the Worst Sector ETFs

It&#39;s tied with energy for the smallest weight in the <a href="https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-sp-500-etf-trust-spy">S&amp;P 500 at 2.57%</a>, but the oft-overlooked materials sector is on the rise.
The S&amp;P 500 Materials Index gained almost 1.5% last week and enters Monday trading at its highest levels since late 2017. While there are plenty of indications that <a href="https://www.benzinga.com/news/earnings/20/08/16989656/5-value-stocks-in-the-basic-materials-sector">the sector is undervalued</a>, that status isn&#39;t the only reason the group is being bid higher.
Depressed Treasury yields &mdash;&nbsp;which are stirring inflation speculation &mdash;&nbsp;and rising commodities are fueling renewed interest in the sector.
Here are three materials exchange traded funds for investors to consider in the search for more near-term upside.
Materials Select Sector SPDR (XLB)
The Materials Select Sector SPDR (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/xlb#NYSE">XLB</a>) is the largest ETF tracking this sector and is higher by 3.26% over the last month. XLB also enters Monday trading less than 1% below its 52-week high.
Owing to a shallow pool of large-cap candidates for this sector, XLB has just 28 holdings and is top-heavy, as Linde Plc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/lin#NYSE">LIN</a>) accounts for more than 18% of the fund&#39;s weight. XLB&#39;s top 10 holdings combine for almost two-thirds of the fund&#39;s weight.
Fun fact: XLB is&nbsp;either the best or second-best sector SPDR ETF in <a href="https://www.cxoadvisory.com/calendar-effects/sector-performance-by-calendar-month/">four months of the year</a>.
VanEck Vectors Agribusiness ETF (MOO)
The VanEck Vectors Agribusiness ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/moo#NYSE">MOO</a>) is higher by almost 8% over the past month and is closing in on all-time highs. The ETF turns 13 years old at the end of this month.
MOO follows the &ldquo;MVIS Global Agribusiness Index (MVMOOTR), which is intended to track the overall performance of companies involved in: (i) agri-chemicals, animal health and fertilizers, seeds and traits, from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations (including grain, oil palms, sugar cane, tobacco leafs, grapevines, etc.), and trading of agricultural products,&rdquo; <a href="https://www.vaneck.com/etf/equity/moo/overview/">according to VanEck</a>.
MOO is interesting in the current environment because agricultural commodities are&nbsp;historically&nbsp;inflation fighters, and an equity approach is a practical play on what&#39;s usually a volatile asset class.
Invesco S&amp;P SmallCap Materials ETF (PSCM)
With small-cap stocks in rally mode, adventurous investors may want to give the Invesco S&amp;P SmallCap Materials ETF (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/pscm#NASDAQ">PSCM</a>) a look. While PSCM is higher by 17% over the past month, making it the best-performing member of the trio highlighted here, it also has the furthest to run back to its 52-week high.
Home to 38 stocks, PSCM allocates almost 56% of its weight to chemicals manufacturers. A third of the fund&#39;s components are classified as value stocks.

<div class="entry-content">

		Picking from the multitude of sector ETFs is a daunting task. In any given sector there may be as many as 50 different ETFs. There are at least 177 ETFs across all sectors.

		Why are there so many ETFs? The answer is: because ETF providers are making lots of money selling them. The number of ETFs has little to do with serving investors&rsquo; best interests. Below are three red flags investors can use to avoid the worst ETFs:
<ol>
<li>
			Inadequate liquidity</li>
<li>
			High fees</li>
<li>
			Poor quality holdings</li>
</ol>

		I address these red flags in order of difficulty. Advice on <a href="http://blog.newconstructs.com/2012/11/30/how-to-find-the-best-sector-etfs/">How to Find the Best Sector ETFs is here</a>.

		How To Avoid ETFs with Inadequate Liquidity

		This is the easiest issue to avoid and my advice is simple. Avoid all ETFs with less than $100 million in assets.

		How To Avoid High Fees

		ETFs should be cheap, but not all of them are. The first step here is to know what is cheap and expensive.

		To ensure you are paying at or below average fees, invest only in ETFs with an expense ratio below 0.55%, which is the average expense ratio of the 177 US equity ETFs I cover. Weighting the expense ratios by assets under management, the average expense ratio is lower at 0.32%. A lower weighted average is a good sign that investors are putting money in the cheaper ETFs.

		Figure 1 shows the most and least expensive sector ETFs in the US equity universe based on <a href="http://blog.newconstructs.com/2011/10/28/total-annual-costs-methodology/">total annual costs</a>. ProShares provides all five of the most expensive ETFs while SPDR ETFs are among the cheapest.
<div>

			Figure 1: Most &amp; Least Expensive ETFs
</div>
<div>

			<a href="http://blog.newconstructs.com/wp-content/uploads/2012/12/WorstSectorETF_Fig1.jpg"><img alt="" class="aligncenter size-full wp-image-5156" height="169" src="http://blog.newconstructs.com/wp-content/uploads/2012/12/WorstSectorETF_Fig1.jpg" title="WorstSectorETF_Fig1" width="480" /></a>

			Sources:&nbsp;&nbsp; New Constructs, LLC and company filings
</div>

		Proshares Ultra Health Care (NYSE: <a class="ticker" href="/stock/rxl#NYSE">RXL</a>) and ProShare Ultra Consumer Goods (NYSE: <a class="ticker" href="/stock/uge#NYSE">UGE</a>) are the two most expensive US equity ETFs I cover. Schwab U.S. REIT (NYSE: <a class="ticker" href="/stock/schh#NYSE">SCHH</a>) and Vanguard REIT (vVNQ) are the least expensive. Ironically, RXL and UGE are also the best-rated ETFs in Figure 1 while the cheapest ETFs receive my worst 1-Star or Very Dangerous Rating. RXL and UGE earn good ratings because the quality of their holdings is strong enough to justify a higher cost. On the other hand, SCHH and VNQ hold poor stocks. And no matter how cheap an ETF, if it holds bad stocks, its performance will be bad.

		This result highlights why investors should not choose ETFs based only on price. The quality of holdings matters more than price.

		How To Avoid ETFs with the Worst Holdings

		This step is by far the hardest, but it is also the most important because an ETF&rsquo;s performance is determined more by its holdings than its costs. Figure 2 shows the ETFs within each sector with the worst holdings or <a href="http://blog.newconstructs.com/2011/11/22/portfolio-management-rating-methodology/">portfolio management ratings</a>. The sectors are listed in descending order by overall rating as detailed in my <a href="http://blog.newconstructs.com/2012/10/08/sector-rankings-for-etfs-mutual-funds/">4Q Sector Ratings report</a>.
<div>

			Figure 2: Sector ETFs With Worst Holdings
</div>
<div>

			<a href="http://blog.newconstructs.com/wp-content/uploads/2012/12/WorstSectorETF_Fig2.jpg"><img alt="" class="aligncenter size-full wp-image-5155" height="157" src="http://blog.newconstructs.com/wp-content/uploads/2012/12/WorstSectorETF_Fig2.jpg" title="WorstSectorETF_Fig2" width="480" /></a>

			Sources:&nbsp;&nbsp; New Constructs, LLC and company filings
</div>

		My <a href="http://blog.newconstructs.com/2011/11/23/predictive-fund-rating-methodology/">overall ratings on ETFs</a> are based primarily on my <a href="http://blog.newconstructs.com/2011/11/22/stock-rating-system-new-constructs-methodology-for-rating-equities/">stock ratings</a> of their holdings. My firm covers over 3000 stocks and is known for the due diligence done on each stock we cover.

		PowerShares&rsquo; ETFs appear more often than any other provider in Figure 2, which means they offer the most ETFs with the worst holdings. Powershares S&amp;P SmallCap (NYSE: <a class="ticker" href="/stock/pscc#NYSE">PSCC</a>) has the worst holdings of all consumer staples ETFs. PowerShares Lux Nanotech (NYSE: <a class="ticker" href="/stock/pxn#NYSE">PXN</a>), PowerShares S&amp;P SmallCap Industrials (NYSE: <a class="ticker" href="/stock/psci#NYSE">PSCI</a>), PowerShares S&amp;P SmallCap Energy (NYSE: <a class="ticker" href="/stock/psce#NYSE">PSCE</a>), and PowerShares S&amp;P SmallCap Materials (NYSE: <a class="ticker" href="/stock/pscm#NYSE">PSCM</a>) have the worst holdings of all ETFs in their sectors.

		Note that no ETFs with a dangerous <a href="http://blog.newconstructs.com/2011/11/22/portfolio-management-rating-methodology/">portfolio management rating</a> earn an overall rating better than two stars. These scores are consistent with my belief that the quality of an ETF is more about its holdings than its costs. If the ETF&rsquo;s holdings are dangerous, then the overall rating cannot be better than dangerous because one cannot expect the performance of the ETF to be any better than the performance of its holdings.

		Figure 2 reveals that the cheapest ETF, SCHH, gets my worst rating because its holdings get my very dangerous rating. Similarly, Utilities Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xlu#NYSE">XLU</a>), also one of the cheapest ETFs, gets a dangerous portfolio management rating and, therefore, cannot earn anything better than a 2-star or dangerous overall rating. Again, the ETF&rsquo;s overall rating cannot be any better than the rating of its holdings.

		Find the ETFs with the worst overall ratings on my <a href="http://bit.ly/12y5qTj">ETF screener</a>. More analysis of the <a href="http://blog.newconstructs.com/2012/10/22/4q-best-worst-etfs-mutual-funds-by-style-recap/">Best Sector ETFs is here</a>.

		The Danger Within

		Buying an ETF without analyzing its holdings is like buying a stock without analyzing its business and finances. As Barron&rsquo;s says, investors should know the <a href="http://www.newconstructs.com/nc/news/display.htm?task=view&amp;newsItemId=402880a82dd6e460012dd754baf60001">Danger Within</a>. Put another way, research on ETF holdings is necessary due diligence because an ETF&rsquo;s performance is only as good as its holdings&rsquo; performance.

		PERFORMANCE OF ETF&rsquo;s HOLDINGs = PERFORMANCE OF ETF

		Best &amp; Worst Stocks In these ETFs

		Simon Property Group (NYSE: <a class="ticker" href="/stock/spg#NYSE">SPG</a>) is one of worst stocks I cover. It is the top holding (12% of assets) of SCHH. SPG earns my Very Dangerous rating. SPG has misleading earnings &ndash; its <a href="http://blog.newconstructs.com/2010/08/05/economic-versus-accounting-earnings/">economic earnings</a> are negative and declining while its reports accounting earnings are positive and increasing. During the 14 years in my model, the company has never generated positive economic earnings. Not only is SPG not profitable, it is also overvalued. To justify its current stock price (~$155), the company must increase profits by 12.3% compounded annually for 20 years. That is a lot of future value creation for a company that has never created value. Investors should avoid this stock.

		Johnson &amp; Johnson (NYSE: <a class="ticker" href="/stock/jnj#NYSE">JNJ</a>) is one of favorite holdings in RXL, one of two ETFs in Figure 1 to get my 4-star rating. This stock gets my Very Attractive rating. JNJ has a return on invested capital (<a href="http://www.newconstructs.com/nc/help/glossary.htm#roicDef">ROIC</a>) of 17%, which places it in the top quintile of all companies. Usually that kind of profitability comes at a price. In this case, the valuation of JNJ&rsquo;s stock price implies the company&rsquo;s profits will permanently decline by over 25%. RXL&rsquo;s large allocation (12%) to a highly profitable, yet undervalued stock, exemplifies why RXL is one of the few ETFs that gets an Attractive or 4 star rating.

		Disclosure: I own JNJ. I receive no compensation to write about any specific stock, sector or theme.
</div>

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