Materials Sector ETFs: Mining and Chemicals
The materials sector is the market's smallest and one of its most cyclical — miners, chemical giants and packaging firms whose fortunes rise and fall with the global growth cycle.
Don't have time? Here's what you need to know:
- 1Materials is the market's smallest sector — miners, chemicals, gases and packaging — so a broad fund holds very little of it.
- 2XLB tracks S&P 500 materials and is top-heavy; VAW is slightly broader, including mid- and small-caps; both cost around 0.09-0.10%.
- 3The sector is highly cyclical and tied to the global growth and commodity cycle, not a defensive holding.
- 4Hold it, if at all, as a small satellite expressing a deliberate growth, commodity or inflation thesis — and rebalance it back to target.
What's Actually Inside the Materials Sector
The materials sector covers the companies that supply the raw inputs of the physical economy: metals and mining, chemicals, construction materials, industrial gases, and packaging. It is the smallest of the eleven sectors, typically only a low-single-digit share of a broad U.S. index, which means a broad-market fund gives you very little exposure to it by default.
In the United States, the sector is more chemicals-and-industrial-gases than pure mining — think large diversified chemical companies, industrial-gas suppliers and paint and coatings makers, alongside some metals and packaging firms. That matters, because a U.S. materials fund behaves somewhat differently from a global mining-heavy basket; it is less of a pure commodity bet and more a blend of commodity-linked and specialty manufacturers.
The Main Ways to Own It
Two broad funds dominate access to the U.S. materials sector. XLB, the Materials Select Sector SPDR, holds the materials companies within the S&P 500 — a concentrated set of large caps led by a handful of major chemical and industrial-gas names. VAW, Vanguard's materials fund, casts a slightly wider net by including mid- and smaller-cap materials companies beyond the S&P 500.
The two are similar in spirit but differ in breadth and concentration. XLB is more top-heavy in its largest holdings; VAW is a touch more diversified across company sizes. Both are inexpensive by sector-fund standards, typically around 0.08-0.10%, and both are highly concentrated by sector standards because the materials universe itself is small.
| XLB | VAW | |
|---|---|---|
| Issuer | State Street (SPDR) | Vanguard |
| Universe | S&P 500 materials | Broader U.S. materials |
| Cap exposure | Large-cap focused | Includes mid/small caps |
| Typical expense ratio | ~0.09% | ~0.10% |
| Concentration | More top-heavy | Slightly broader |
A Cyclical, Commodity-Linked Ride
Materials is one of the market's most cyclical sectors. Demand for steel, chemicals, copper and packaging tracks the pace of global construction, manufacturing and consumer activity, so the sector tends to boom in economic expansions and slump in recessions. It is also sensitive to commodity prices and, because so much demand comes from overseas, to global growth — China's construction and industrial cycle has historically been a major swing factor.
This makes materials a feast-or-famine sector rather than a steady compounder. It can lead the market during early-cycle recoveries and commodity upswings, and lag badly when growth slows. Some investors hold a small materials tilt as a partial inflation or hard-asset play, since the sector's pricing tends to rise with commodity costs. You can weigh it against the energy sector with the XLI vs XLB comparison, which contrasts two cyclical sectors.
Important: Materials is not a defensive holding. Its earnings are tightly tied to the global growth and commodity cycle, so it can fall hard and stay weak through an economic slowdown.
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Does Materials Deserve a Spot in Your Portfolio?
For most investors, the honest answer is that a small market-weight share of materials already sits inside a broad-market fund, and that is often enough. Overweighting the sector is a deliberate cyclical or inflation bet, not a core building block — it has not historically been a high-return sector over the very long run, and its volatility is high.
If you do tilt toward materials, treat it as a small satellite with a clear thesis: an expectation of strong global growth, a commodity upcycle, or an inflationary period in which hard-asset producers benefit. Size it modestly, expect a bumpy ride, and rebalance it back to target so a strong run does not quietly turn a small tilt into a large concentrated bet.
Tip: Because materials moves with the global growth and commodity cycle, it can be a useful diversifier against sectors that suffer in inflation — but only in a small, deliberately sized dose.
Frequently Asked Questions
What do materials sector ETFs invest in?
They hold the companies that produce the raw inputs of the economy: metals and mining, chemicals, construction materials, industrial gases and packaging. In the U.S., funds like XLB and VAW lean more toward large chemical and industrial-gas companies than pure miners, making them a blend of commodity-linked and specialty manufacturers.
What's the difference between XLB and VAW?
Both track the U.S. materials sector at a low cost, but XLB holds only the materials companies in the S&P 500 and is more concentrated in its largest names, while VAW casts a wider net that includes mid- and smaller-cap materials firms. VAW is slightly more diversified; XLB is more top-heavy. Their long-run behaviour is broadly similar.
Is the materials sector a good inflation hedge?
It can offer partial protection, because materials companies' output prices tend to rise with commodity costs during inflationary periods. But it is an imperfect, volatile hedge: the sector is highly cyclical and tied to global growth, so it can fall sharply if inflation arrives alongside an economic slowdown. Treat it as a small tilt, not a reliable hedge.
How much should I allocate to materials ETFs?
Little to none beyond what your broad-market fund already holds, unless you have a specific view. Materials is the smallest sector and one of the most cyclical, and it has not historically been a standout long-run performer. If you tilt toward it, keep it a small satellite sized to a clear thesis about growth, commodities or inflation.
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Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.