This Pair Of Forgotten Materials Could Thrive In February

In the world of materials ETFs, it's hard to consider many of the constituents "undiscovered" on "unloved," but those are fitting adjectives for a pair of ETFs that could prove to be compelling ideas for the rest of this month. Those ETFs are the iShares S&P Global Materials Sector Index Fund MXI, an ETF the Professor has beaten the drum on countless times in the past, and the SPDR S&P Global Natural Resources ETF GNR, an ETF that is less than six months old. Both funds show BHP Billiton BHP, the world's largest mining company, among their top-10 holdings, though the stock accounts for more than 12% of MXI's weight compared to just under 5% for GNR. Brazil's Vale VALE and Rio Tinto RIO, the largest and second-largest iron ore producers in the world, respectively, both figure into both ETFs, though more prominently in MXI as both Vale and Rio are top-10 holdings in that ETF. GNR offers exposure to these names, but on a smaller scale. That said, the high beta materials sector is once again a key driver in this market rally and that theme could be highlighted over the next three weeks with earnings reports from Rio on Thursday, BHP on Feb. 16 and Vale on Feb. 24. The issue to watch, particularly with BHP and Rio, is what these cash-rich companies are going to do to reward shareholders. Vale already said it plans to pay a dividend that is at least on par with last year's record $4 billion payout. That's a start, but BHP and Rio shareholders have grown tired of the expensive failures on the mega-deal circuit and are clamoring for higher dividends and share buybacks. While MXI and GNR both look a bit rich at current levels, if BHP and Rio can offer bullish guidance coupled with shareholder rewards, then both ETFs could extend their runs through the end of this month, providing investors with some value in a multi-week swing trade.