Year-to-date, the Materials Select Sector SPDR (NYSE:XLB) is down 7.8 percent, good for the second-worst among the nine legacy sector SPDR exchange traded funds, but XLB and rival materials ETFs could be in for some near-term relief on the back of major mergers and acquisitions news.
After the close of U.S. markets Tuesday, the Wall Street Journal reported DuPont Co. (NYSE:DD) and rival Dow Chemical Co. (NYSE:DOW) are in merger talks described as "advanced."
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DuPont and Dow Chemical are XLB's largest and second-largest holdings, respectively, combining for 23.4 percent of the $2.11 billion ETF's weight. The iShares U.S. Basic Materials ETF (NYSE:IYM) has a combined weight of 22.4 percent to the two materials giants while the Vanguard Materials ETF (NYSE:VAW) dedicated 15.7 percent of its combined weight to DuPont and Dow Chemical at the end of October.
A combined Dow Chemical/DuPont "would create a giant with more than $90 billion in combined sales and strong positions in everything from plastics to industrial chemicals and agriculture," according to WSJ.
Of the nearly 80 ETFs that holds shares of DuPont, none of have larger weights to the stock than XLB. Roughly 70 ETFs have exposure to Dow Chemical with XLB also boasting the largest exposure to the chemicals giant.
Another ETF for investors keep in an eye as the Dow/DuPont marriage moves toward confirmation or a breakup is the Guggenheim S&P 500 Equal-Weight Materials ETF (NYSE:RTM). DuPont and Dow Chemical are RTM's second- and fourth-largest holdings, respectively, combining for 9.4 percent of the ETF's weight, according to Guggenheim data.
News of the potential Dow/DuPont marriage comes at a time of year when materials historically perform well. In fact, XLB is usually the best-performing sector SPDR in November and December. XLB is up 0.9 percent since the start of November.
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