Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

Investing in materials stocks

Materials stocks thrive in a strong economy but can be risky during an economic downturn.

Key Stocks and ETFs Jump to List
Open a Stock Trading Account Compare Brokers

What are materials stocks?

Materials stocks make up the materials sector — one of the 11 major sectors of the stock market. These companies find, develop and process raw materials such as oil, timber and metal. Since most of these materials are used in construction and packaging, any changes in the business cycle and economy can affect their performance.

What industries does it include?

The materials sector includes companies that make basic materials that we use in everyday items. The 5 major industries include:

  • Chemicals. Those that convert raw materials to industrial chemicals, such as plastic.
  • Construction. This industry comprises companies that deal primarily with the construction of buildings, roads and bridges.
  • Containers and packaging. These professionals tackle the design and manufacture of various types of packaging, like aluminum food containers, paint cans and cardboard boxes.
  • Paper and forest products. This industry is dedicated to growing and harvesting lumber, timber and paper.
  • Metals and mining. These companies are responsible for locating and extracting metals and minerals like aluminum, gold and silver.

How to invest in the materials sector

When investing in the materials sector, you have 2 options: exchange-traded funds (ETFs) or individual stocks. ETFs track the sector and hold a basket of materials stocks, which lowers your exposure to risk by diversifying your portfolio. But they usually come with higher fees and pay lower dividends. Owning shares of individual stocks can offer higher payouts, but can be riskier.

Here’s a snapshot of how to invest in stocks and ETFs:

  1. Choose a brokerage. Compare brokerage platforms to select a firm that matches your financial goals.
  2. Open an account. Most brokerage accounts offer online accounts. While some don’t require a deposit to open, you’ll need to fund your account before you can purchase any investments.
  3. Select your securities. Use your platform’s resources and research tools to read up on stocks and ETFs.
  4. Make a purchase. Place an order on a security you’d like to invest in.
  5. Track your investments. Log into your brokerage account to monitor your stocks or ETFs.

What stocks are in the materials sector?

  • Barrick Gold Corporation (TSX: ABX)
  • Wheaton Precious Metals Corp. (TSX: WPM)
  • Domtar Corporation (TSX: UFS)
  • Ero Copper Corp. (TSX: ERO)
  • Neo Performance Materials Inc. (TSX: NEO)
  • West Fraser Timber Co. Ltd. (TSX: WFG)
  • Air Products and Chemicals, Inc. (NYSE: APD)
  • The Sherwin-Williams Company (NYSE: SHW)
  • Ecolab Inc. (NYSE: ECL)
  • BHP Group (NYSE: BHP)
  • Rio Tinto Group (NYSE: RIO)
  • China National Building Material Company Limited (HKSE: 3323.HK, OTC Markets: CBUMY)

What ETFs track the materials sector?

Several popular ETFs that follow the materials sector include:

  • iShares S&P/TSX Capped Materials Index ETF (TSX: XMA)
  • Fidelity MSCI Materials ETF (NYSEArca: FMAT)
  • First Trust Materials AlphaDEX Fund (NYSEArca: FXZ)
  • Invesco S&P 500 Equal Weight Materials ETF (NYSEArca: RTM)
  • Materials Select Sector SPDR ETF (NYSEArca: XLB)
  • SPDR Metals and Mining ETF (NYSEArca: XME)
  • Vanguard Materials Index Fund (NYSEArca: VAW)

How is the materials sector performing?

The stock market is in constant flux, and individual stocks can change prices quickly. But you can use the performance of ETFs to gauge the average performance of a sector over time. The graph below tracks the Materials Select Sector SPDR ETF (XLB), which can be used to track the performance of materials stocks. Note that figures are shown in US dollars.

Why invest in the materials sector?

Materials stocks provide the raw materials necessary to produce goods and services. These are popular investments because these companies tend to thrive in a strong economy.

Many materials stocks also generate regular cash flow and return cash to shareholders through consistent dividends. The SPDR S&P Metals and Mining ETF dividend yield is 1.03%, while the Vanguard Materials Index Fund ETF dividend yield is 1.46%. For comparison, the dividend yield of the S&P 500 index is 1.35% as of June 30, 2021.

A few individual stocks are boasting dividend yields well above this. For example, Compass Minerals International has a dividend yield of 4.4% as of June 9, 2021 and International Paper Company has a dividend yield of 3.5% as of August 13, 2021.

What unique risks does the materials sector face?

The materials sector is especially vulnerable to the global economy, international politics and fluctuating demand. For example, materials stocks can get caught in the crosshairs of geopolitical tensions and trade wars. Tariffs can lead to higher prices, which can delay or deter sales.

Materials stocks can also plunge when there is low demand, especially during economic recessions.

Compare stock trading platforms

If you’re planning on buying stocks or ETFs, you’ll need a brokerage account. Compare your options to find the best fit.

Name Product Available Asset Types Stock Fee Option Fee Account Fee ETF Transaction Cost Feature Table description
OFFER
Wealthsimple Trade
Stocks, ETFs
$0
N/A
$0
Free
Get a $50 bonus when you open a Wealthsimple Trade account and deposit and trade at least $100.
Pay no commissions when you trade Canadian stocks and ETFs with Wealthsimple Trade.
Scotia iTRADE
Bonds, Options, Mutual Funds, ETFs, GICs, International Equities
$4.99-$9.99
$9.99 + $1.25 contract ($4.99 + $1.25 contract if completed 150 trades or more a quarter)
$0
$9.99 ($4.99 if completed 150 trades or more a quarter)
Pay no annual account fees.
Buy, sell and trade ETFs, Equities, Options and more with competitive commissions.
CIBC Investor's Edge
Stocks, Bonds, Options, Mutual Funds, ETFs
$4.95 - $6.95
$4.95 - $6.95 (+$1.25 per contract)
$0 if conditions met, otherwise $100/year
$6.95
$4.95 - $6.95 is applicable for online stock, ETF and option trades only. Pay $4.95 when you qualify as an Active Trader (trade 150+ times per quarter).
An intuitive and easy-to-use platform with access to a variety of tools that help you make smart decisions and trade with confidence.
Interactive Brokers
Stocks, Bonds, Options, ETFs, Currencies, Futures
Min. $1.00, Max. 0.5% of trade value
$1.50 min. per order
$0
Min. $1.00, Max. 0.5% of trade value
Extensive trading capabilities and global investment tracking.
Access market data 24 hours a day, six days a week and invest in global stocks, options, futures, currencies, bonds and funds from one single account.
Questrade
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, International Equities, Precious Metals
$4.95-$9.95
$9.95 + $1 per contract
$0
Free
Get $50 in free trades when you fund your account with a minimum of $1,000.
Opt for self-directed investing and save on fees or get a pre-built portfolio and take some of the guesswork out.
Qtrade Direct Investing
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs
$6.95 - $8.75
$6.95 - $8.75 + $1.25 per contract
$0 if conditions met, otherwise $25/quarter
$0 - $8.75
Trade 100 select ETFs free of charge.
Qtrade Direct Investing offers low trading commissions and an easy-to-use platform with access to powerful tools and a wide selection of investment options. Trade 100 ETFs free of charge and thousands more for $8.75 or lower.
loading

Compare up to 4 providers

Bottom line

The materials sector may be a good option if you’re looking for cash dividends and the potential for profit in a flourishing economy. But it comes with unique risks because of its sensitivity to the global economy, trade and politics.

Be sure to explore your online trading platform options to pick a brokerage account that best fits your investment portfolio.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

More on investing

Investing strategy: How growth stocks can make you money

Investing strategy: How growth stocks can make you money

Learn how to strategically find and invest in booming companies.

Read more…
What is a stop-loss order?

What is a stop-loss order?

The stop-loss order can help you avoid big losses on your currency holdings.

Read more…
Big data stocks

Big data stocks

Looking to buy into big data companies? Check out this list of stocks.

Read more…
Bus stocks

Bus stocks

Looking to buy into the bus transportation industry? Check out this list of stocks.

Read more…
Asset management stocks

Asset management stocks

Looking to buy into the asset management industry? Check out this list of stocks.

Read more…
Assisted living stocks

Assisted living stocks

Looking to buy into the assisted living industry? Check out this list of stocks.

Read more…

More guides on Finder

Ask an Expert

You must be logged in to post a comment.

Go to site