Whereas the general inventory market has slumped in latest weeks, metals and mining shares are exhibiting no indicators of weak spot and are as a substitute selecting up extra momentum. The S&P 500 (SPX) is down 3.2% over the previous month, and the tech-centric Nasdaq (NDX) is down 3.8%, however the SPDR S&P Metals and Mining ETF (NYSEARCA:XME), which invests in these metals and mining shares, is up 1.5% over the identical time-frame.
I’m bullish on XME based mostly on the broad publicity it provides traders to a various group of engaging metals like gold, copper, and even uranium at a time once we may very well be within the early innings of a bull market for a lot of of those metals, as we’ll talk about under.
What Is the XME ETF’s Technique?
XME invests in an index of metals and mining shares. In accordance with the fund, XME “seeks to offer publicity to the metals & mining section of the S&P TMI (Complete Market Index), which includes the next sub-industries: Aluminum, Coal & Consumable Fuels, Copper, Diversified Metals & Mining, Gold, Treasured Metals & Minerals, Silver, and Metal.”
It makes use of a modified equal-weighted strategy and invests in large-, mid-, and small-cap shares.
Are We within the Early Innings of a Metals and Mining Bull Market?
Whether or not it’s valuable metals like gold or industrial metals like copper, steel costs have surged in latest months, main many analysts and observers to posit that we may very well be within the early levels of a brand new bull marketplace for metals.
Take gold, for instance, which lately soared to file highs. Gold is considered by folks all around the world as a retailer of worth and a substitute for the U.S. greenback. Because the U.S. debt grows to file ranges, gold has change into an more and more interesting different as a safe-haven asset to folks each within the U.S. and internationally.
Moreover, central banks around the globe, reminiscent of China, Turkey, India, Singapore, and others, have been loading up on gold and replenishing their gold reserves over the previous 12 months.
China imported a file quantity of gold in 2023 as Chinese language traders regarded for a safe-haven asset whereas China’s fairness and property markets endured downturns. The truth is, the $90 billion value of gold that China imported represents a surprising nine-fold improve from simply three years in the past.
And it’s not simply valuable metals like gold. Copper is having a second of its personal as industrial exercise in each the U.S. and China rebounds after many months of declines.
Copper appears significantly intriguing over the long run attributable to looming provide constraints and doubtlessly growing demand. This improve is pushed by the expansion of AI know-how, which necessitates extra information facilities—a key finish marketplace for copper wiring. Moreover, as an important element in electrical automobiles, the ability grid, and wind generators, copper may considerably profit from a shift in the direction of extra renewable vitality, ought to that come to fruition.
Analysts from Citigroup (NYSE:C) lately postulated that we may very well be in a second bull marketplace for copper this century, stating, “Explosive value upside is feasible over the following two to 3 years.”
In the meantime, uranium costs hit a 16-year excessive in January. Though costs have pulled again from these highs, uranium stays promising over the long run. The world is more and more embracing nuclear energy as a technique to generate electrical energy with out emitting greenhouse gases.
With totally different metals all performing effectively and exhibiting potential for additional upside, it is sensible to take a diversified strategy and spend money on metals as an entire as a substitute of attempting to choose a person winner, which is precisely what XME permits traders to do, as we’ll talk about within the subsequent part.
Basket Strategy Towards Metals and Mining
XME holds 33 shares, and its high 10 positions make up 47.5% of holdings. Beneath, you’ll discover a desk of XME’s high 10 holdings utilizing TipRanks’ holdings display screen.
Whereas XME doesn’t essentially personal a ton of various names, it doesn’t must because it nonetheless provides traders publicity to the complete spectrum of several types of metals, together with valuable metals, base metals and extra.
For instance, Freeport McMoran (NYSE:FCX) is the world’s largest copper firm, whereas Newmont Mining (NYSE:NEM) is a significant gold miner that can be concerned in silver, copper, and extra. In the meantime, Alcoa (NYSE:AA), the fund’s largest holding, produces aluminum, whereas Metal Dynamics (NASDAQ:STLD) and Industrial Metals (NYSE:CMC) produce metal.
XME even wades into extra unique components of the metals sector with investments in Uranium Power (NYSEMKT:UEC), which explores for and mines uranium, a promising vitality supply. One other funding, MP Supplies Corp (NYSE:MP), produces uncommon earth metals utilized in finish merchandise like electrical automobiles, drones, and extra.
Compelling Efficiency in Current Instances
Let’s get this out of the way in which: XME has been a little bit of a laggard over the previous decade, with an underwhelming 10-year annualized return of simply 5.4%.
However extra lately, the fund has been much more thrilling. For instance, it has a way more thrilling 16.1% annualized return over the previous three years and an much more promising 16.9% return over the previous 5 years, which is an extended sufficient time-frame for me to consider that its sturdy latest efficiency is greater than only a flash within the pan.
It appears probably that we may very well be within the early levels of a bull marketplace for metals like copper, gold, and past, as mentioned above, so XME’s efficiency may proceed to impress.
Does XME Pay a Dividend?
Whereas few persons are going to write down residence about XME’s dividend yield, it’s value noting that it does pay a dividend and presently yields 0.9%.
What Is XME’s Expense Ratio?
Like most of the SPDR ETFs, XME maintains an expense ratio of 0.35%. Which means that a person investing $10,000 into the fund can pay $35 in charges yearly. Whereas this doesn’t stand out as being significantly low cost, it isn’t significantly costly both, as it’s under the typical expense ratio for all ETFs (0.57%).
Is XME Inventory a Purchase, In accordance with Analysts?
Turning to Wall Avenue, XME earns a Reasonable Purchase consensus ranking based mostly on 21 Buys, 12 Holds, and one Promote ranking assigned up to now three months. The common XME inventory value goal of $70.20 implies 18.4% upside potential.
Trying Forward
I’m bullish on XME as a result of, at a time when metals and mining shares are selecting up momentum, XME permits traders to realize publicity to all kinds of those shares. I like the truth that XME presents traders publicity to a various vary of sectors, together with gold miners, copper miners, metal producers, firms concerned in uranium and uncommon earth metals, and extra. This broad focus is helpful, particularly as we could also be within the early levels of a bull marketplace for metals.
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