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Material ETFs in Focus on DowDuPont's Mixed Q3 Results

DowDuPont Inc. DWDP, created from the merger of Dow Chemical and DuPont on Aug 31, reported mixed third-quarter results. While the company met our earnings estimate, revenues beat.

Quick Look to Earnings

Earnings per share came in at 55 cents, matching the Zacks Consensus Estimate but increasing 10% from the year-ago earnings. Revenues climbed 7.7% year over year to $18.3 billion and surpassed our estimate of $17.5 billion (read: 5 Sector ETFs for Revenue Growth Play).

The company remained focused on its $3 billion cost synergy target, stemming from $1 billion in Agriculture, $1.2 billion in Materials Science and $0.8 billion in Specialty Products. These cost savings are expected to generate through procurement savings, layoffs, buildings and facilities consolidation, and shutting down selected assets. Additionally, the company is in the process of integrating the three divisions and their separation into three independent companies. The breakup is expected to take place within 18 months of the merger closing.

Market Impact

Shares of DWDP dropped 1.7% on the day following the earnings announcement. The stock has a Zacks Rank #3 (Hold) and a VGM Style Score of A. Plus it belongs to a solid industry having Zacks Rank in the top 26%, indicating growth potential.

Given this, ETFs having large allocation to this chemical giant will be in focus in the days ahead. The drop in DWDP shares has led to sluggish trading in these ETFs as well. Below, we have highlighted them in detail. These funds have a Zacks ETF Rank #3 (see: all the Materials ETFs here):

iShares U.S. Basic Materials ETF IYM

This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 50 stocks in its basket. The fund has AUM of $956.3 million and charges 44 bps in fees and expenses. Volume is good as it exchanges around 182,000 shares a day. DowDuPont occupies the top position in the basket making up for one-fourth of the portfolio. The product is heavily skewed toward the chemical segment with three-fourth of the portfolio, while industrial gases, steel, and metals & mining receive minor allocation each. It lost 0.7% on the day.

Materials Select Sector SPDR XLB

The most-popular material ETF follows the Materials Select Sector Index. This fund manages about $4.5 billion in its asset base and trades in volumes as heavy as around 4.1 million. The ETF charges 14 bps in fees per year from investors. In total, the fund holds about 25 securities in its basket with DWDP taking the top spot, with nearly 23.2% allocation. In terms of industrial exposure, chemicals dominates the portfolio with 73.4% share while containers & packaging, and metals & mining round off the top three positions. XLB shed 0.7% on the day.

Vanguard Materials ETF VAW

This fund has amassed about $2.2 billion in its asset base and offers exposure to 118 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio while volume is moderate at 88,000 shares. Here too, DowDuPont is the top firm accounting for nearly 18.1% share. Chemicals makes up for nearly three-fifths of the portfolio, while container & packaging and steel offer a nice mix in the portfolio. The ETF has lost 0.6% (read: Trump Passes Order to Fix U.S. Infrastructure: ETFs in Focus).

Fidelity MSCI Materials Index ETF FMAT

This fund provides exposure to 118 materials stocks with AUM of $273.4 million. This is done by tracking the MSCI USA IMI Materials Index. Here too, DWDP is the top two firm with 18.4% allocation. Chemicals accounts for 67.9%, while container & packaging, and metals & mining round off the top three spots with a double-digit exposure each. The ETF has 0.08% in expense ratio while volume is moderate at more than 56,000 shares a day. It was down 0.6%.

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SPDR-MATLS SELS (XLB): ETF Research Reports
FID-MATRLS (FMAT): ETF Research Reports
ISHARS-US BA MA (IYM): ETF Research Reports
Dow Chemical Company (The) (DWDP): Free Stock Analysis Report
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