Two of my ETFs, MXI and DBN, together constitute about 1.8% of my total portfolio, but 8.6% of my basic materials holdings. I know it is redundant to hold both, but want to choose "wisely" between the two. I couldn't find the expense numbers for both of them. Which would you choose, and for what reasons?
MXI is the iShares Global Materials and DBN is WisdomTree International Basic Materials. I own MXI for a few clients for whom individual stocks in this sector are not ideal for whatever reason.
He notes it is redundant to hold both. Well, sort of. If the two funds, which are very similar, only total 1.8% of your portfolio, then really the only redundancy is with the commission. If you sell one now, would you then put that money into the other? So what's better, paying now or paying later when/if you sell? I think the important thing here is that the two added together don't constitute a reckless bet.
The 8.6% number is a little more eyeopening. As I read that, I think he is saying his allocation to materials is in the mid-teens. The S&P 500 appears to be 3.17% in materials, the iShares DJ Total Market ETF (IYY) is 3.42%, the iSharesETF (IWB) is 4.68% (I think it lists it as materials and processing), and the iShares Russell 1000 S&P 1500 (ISI) is 3.58%. Depending on the benchmark used, his number is high. Depending on what else is allocated to the sector, this could be volatile and prone to some discomfort if the mega cycle ends abruptly.
As for his question of which I think is better - they seem to be interchangeable. The holdings are very similar to a point. MXI includes the US and DBN does not, but the US weight is not huge. I think the more important differentiation is that the domestic materials ETFs don't have much commodities exposure.
The two BHP listings combine to be the largest holding in each fund. Anglo American (AAUK, which is a client holding) is number two in MXI and number three in DBN. They each also have Rio Tinto, Bayer, BASF and Arcelor in their top tens.
Performance-wise, the two started out tracking very closely but since DBN listed the outperformance looks to be five percentage points. An interesting point is that the entire outperformance appears to come from two periods; a couple of days in late March and maybe around May 1:
While the extra 5% certainly would have been nice, I am not sure at this point if it is sustainable or not. I am not saying it isn't - just that it is unclear to me.
The top-downist in me would note that the more important decision was made when he decided to buy either one. Since inception, regardless of which one anyone chose, holders are up about 50%, while the S&P 500 is up 14%.
A 2% allocation at inception has added 100 basis points to the entire portfolio, which is not too shabby.