Chemicals, not mines, lead State Street's materials ETF

State Street Materials Select Sector SPDR ETF XLB had nearly half its money in chemicals on Nov. 5, and its largest holding was Linde, a company that sells industrial gas. Last week's forecast was about the price of the metals.

On Oct. 28 the World Bank said its metals and minerals price index was projected to reach a new high in 2026, rising 25% from 2025, then fall 3% in 2027. Aluminum, copper and tin were each expected to hit records, on demand from renewable power, electric vehicles and data centers, and on supply disruptions. Precious metals prices were forecast to rise 40% in 2026, the same year.

The outlook was a forecast for 2026's average prices against 2025, released with the year already ten months old. XLB owns companies, and the companies are not the metals.

The fund had $8.43 billion on Nov. 5 and charges 0.08%. It tracks the Materials Select Sector Index. State Street says the companies in that index are chosen by industry classification from the S&P 500. Its industry table that day put chemicals at 47.2%, metals and mining at 20.1%, containers and packaging at 17.7%, and construction materials at 15.0%. Chemicals were more than twice the size of metals and mining.

Linde, at 13.1%, was larger than Newmont, a gold miner, at 6.9%, and Freeport-McMoRan, the copper producer, at 4.6%. The ten largest holdings were 59% of a fund with 24 stocks.

Linde passes energy costs through to customers

Linde does not dig ore. In its quarterly report for the period ended Sept. 30, filed Oct. 29, sales were $9.4 billion, up 9% from a year earlier. Higher prices added 3 percentage points of that gain and higher volumes added 2. One more point came from what Linde calls cost pass-through, "the contractual billing of energy cost variances primarily to on-site customers."

Linde said the billing had minimal impact on operating profit. When power and gas get more expensive, reported sales rise because the contract says the customer pays the difference.

The on-site contracts generally last 10 to 20 years, require the customer to buy a minimum amount, and include clauses that let the price rise. As of Sept. 30 Linde estimated about $66 billion still to be paid under those minimum purchases and from selling plants.

The figure leaves out purchases above the minimums, which the company said can be significant. It expects about half of the minimum-purchase revenue to be earned in the next six years. Its other supply agreements, for gas that is not supplied at the customer's site, generally do not require a minimum purchase.

The copper producer is a smaller holding. The company at the top already has customers committed to buy, and a contract that sends energy costs to them.

Construction materials are three companies

On Nov. 5 the construction-materials line, 15.0% of XLB, was three companies: Vulcan Materials, CRH and Martin Marietta, at 5.3%, 4.9% and 4.8%. CRH produces cement, crushed stone and asphalt.

Martin Marietta said on Nov. 4 that third-quarter shipments of aggregates, the crushed stone, sand and gravel sold from quarries, rose 15.9% to 67.1 million tons, a record for the company. Quarries it acquired more than offset a modest decline in shipments from the operations it already owned.

The average price fell 3.6%, to $22.41 a ton, because the acquired quarries sell for less. On the older operations, the price rose 2.7% after adjusting for which products were sold.

"From an end market perspective, we currently expect continued strength in infrastructure and data centers with softer interest rate-sensitive private construction markets."

That was Ward Nye, Martin Marietta's chair, president and chief executive, in the Nov. 4 release.

iShares' global fund holds the mines

iShares Global Materials ETF MXI held $398 million on Nov. 5 and charges 0.37%. It tracks the S&P Global 1200 Materials (Sector) Capped Index, and it is the fund whose weights look like the metal-price story. State Street and iShares reported the two funds that day on the same industry lines, and the weights did not match.

Metals and mining in MXI ran 27.8 percentage points above XLB. The United States was 37.2% of MXI, so most of the fund is listed elsewhere.

MXI had 91 holdings. Linde was 7.9%, against 13.1% in XLB.

iShares U.S. Basic Materials ETF IYM is more concentrated in Linde than XLB, not less. It tracks the Russell 1000 Basic Materials RIC 22.5/45 Capped Index. On Nov. 5 it had $1.19 billion, 40 holdings and a 0.37% fee. iShares put industrial gases at 26.2% and gold at 18.9%.

On Nov. 4, Linde was 21.0% of IYM. That is a larger share than the 13.1% Linde held in XLB the next day.

A longer list did not shrink Linde

Vanguard Materials ETF VAW holds the longer U.S. list. It seeks to track the MSCI US Investable Market Materials 25/50 Index. Vanguard says the index includes U.S. materials stocks across large, medium and small companies.

The fund charges 0.09%. As of Sept. 30 it held 110 stocks. The ETF had $3.13 billion, and the full fund, including other share classes, had $4.49 billion.

The extra names did not loosen the top. Linde was 15.4% on that date, and the ten largest holdings were 58.4%, close to the 59% in XLB's top ten on Nov. 5.

A better year, then a weaker three

Over the year ended Sept. 30, with dividends reinvested, IYM returned 21.75% and MXI returned 17.90%. Both beat State Street SPDR S&P 500 ETF Trust SPY, at 15.60%, and both beat XLB, at 10.53%. VAW returned 8.02%.

Over three years, annualized, the lead over SPY did not hold. SPY returned 22.73%. IYM returned 13.84% and MXI returned 13.86%. XLB returned 9.48% and VAW returned 9.86%.

Someone who already owns SPY holds materials at 1.79% of that fund, against 35.5% in information technology, State Street's weights on Nov. 5. A materials fund adds to a thin slice of the S&P 500.

A forecast for metal prices meets XLB and MXI only in the metals and mining weight. In XLB that weight is a fifth. In MXI it is nearly half.