Voracious Demand Fuels Rise in S&P Metals and Mining ETF

| About: SPDR S&P (XME)

The SPDR S&P Metals & Mining ETF (AMEX: XME) has benefited from the voracious global demand for raw materials, rising for five straight months and in seven of the past eight heading into June. It's up 31.5% year-to-date.

We recently added XME to our Coolcat ETF Portfolio. XME started trading in June 2006 and has jumped 45.2% since its inception. It first made my ETF rankings in March, debuting in sixth place of 54 ETFs rated that month. It rose to second in April, was third in May and ranked seventh in my latest listings published Sunday. Its 30-day average volume has doubled since March to 238,000 shares per day.

Distributed by State Street Global Markets, XME aims to match the performance, before fees and expenses, of the S&P Metals & Mining Select Industry Index. At first blush you might think this is a gold mining fund similar to the Market Vector Gold Miners ETF (AMEX: GDX). Actually, it shares only three components with GDX. It's more of a steel, iron, coal and raw materials fund, containing holdings that also produce titanium, uranium, nickel, copper, platinum, aluminum and other industrial metals and minerals. It's a very unique fund that doesn't mirror any other, which is quite a welcome development in the "me-too," copycat world of ETFs.

The fund is well diversified, with none of the 26 components representing more than 5% and only one having less than 3%. Alcoa (NYSE: AA), with a market cap of $34.5 billion, is the largest company, but comprises just 3.81% of the fund's total assets. The smallest company, Hecla Mining (NYSE: HL), has a $936-million market cap and makes up 3.17% of the fund.AK Steel (NYSE: AKS), a company with a $3.9-billion market cap, has the largest weighting at 4.94%. The average market capitalization of the 26 holdings is $7.8 billion.

All but three of its components are also in the iShares Dow Jones U.S. Basic Materials Sector Index Fund (AMEX: IYM), but they make up only about 37% of IYM, which has 75 holdings and also contains significant representation in the chemicals and paper sectors as well as other mining and industrial metal plays. XME shares only six components with the Materials Select Sector SPDR Fund (AMEX: XLB), although they make up almost 31% of the 28 holdings in that fund. It has 12 constituents in common with the Market Vector Steel ETF (AMEX: SLX) that make up about 27% of the 36-member fund that tracks the AMEX Steel Index. It's also a rare bird in that it's a sector fund shining brightly in an ETF field dominated by international funds. In fact, it's the only one among my top 10 ranked ETFs that does not have an international connection.

XME's dividend currently yields 0.55%. Like most of the top performing ETFs, XME cooled off a bit this week. It lost ground in four straight sessions and slightly undercut its 50-day moving average before rallying 2.7% Friday. It's 4.5% off its 52-week high of 67.50 established last Friday. XME looks like a good buy at 66 or less with a sell stop at 61.99.

XME 1-yr chart


Disclosure: none