Materials ETFs: Complete Guide for 2026
Last updated: March 2026
Materials Sector Overview
The materials sector includes companies involved in the discovery, development, and processing of raw materials such as metals, chemicals, construction materials, and packaging. These companies provide the fundamental building blocks for infrastructure, manufacturing, and consumer products. The sector is influenced by commodity prices, global economic growth, and industrial demand cycles.
Investing in materials sector ETFs gives you diversified exposure to an entire industry segment without the risk of picking individual stocks. Rather than trying to identify which specific materials company will outperform, sector ETFs spread your investment across dozens or even hundreds of companies within the materials space. This approach is particularly appealing for investors who have a strong conviction about the long-term prospects of the materials sector but want to manage their downside risk through diversification.
The materials sector is considered cyclical, meaning its performance is closely tied to the overall health of the economy. During periods of economic expansion, materials companies tend to outperform as demand for their products and services increases. Conversely, during recessions, these companies may underperform as economic activity contracts. Understanding where we are in the business cycle can help you make more informed decisions about when to increase or decrease your allocation to materials ETFs. Many sophisticated investors use sector rotation strategies to capitalize on these cyclical patterns.
When evaluating materials ETFs, pay close attention to the expense ratio, tracking error, assets under management, and the specific index the fund tracks. Even within the same sector, two ETFs can have meaningfully different compositions. Some may be market-cap weighted, giving more influence to the largest companies, while others may use equal weighting or factor-based approaches. Understanding these differences is essential to selecting the right materials ETF for your investment objectives and risk tolerance.
Top Materials ETFs to Consider
| Ticker | Name | Expense Ratio | AUM | YTD Return |
|---|---|---|---|---|
| XLB | Materials Select Sector SPDR Fund | 9.00% | $6B | +1.5% |
| VAW | Vanguard Materials ETF | 10.00% | $3B | +1.8% |
| IYM | iShares U.S. Basic Materials ETF | 39.00% | $0.8B | +1.2% |
Materials Select Sector SPDR Fund (XLB)
XLB offers exposure to the materials sector with an expense ratio of just 9.00% and $6B in assets under management. With a YTD return of +1.5%, this fund provides a cost-effective way to invest in materials companies. Read full XLB review →
Vanguard Materials ETF (VAW)
VAW offers exposure to the materials sector with an expense ratio of just 10.00% and $3B in assets under management. With a YTD return of +1.8%, this fund provides a cost-effective way to invest in materials companies. Read full VAW review →
iShares U.S. Basic Materials ETF (IYM)
IYM offers exposure to the materials sector with an expense ratio of just 39.00% and $0.8B in assets under management. With a YTD return of +1.2%, this fund provides a cost-effective way to invest in materials companies. Read full IYM review →
Materials Sector Performance History
Understanding the historical performance of the materials sector helps set realistic expectations for future returns. Keep in mind that past performance does not guarantee future results, but long-term trends can provide useful context for your investment decisions.
1-Year Return
+7.3%
3-Year Annualized
+5.9%
5-Year Annualized
+9.1%
Performance data is approximate and for illustrative purposes only. Actual returns may vary by fund. Data as of early 2026.
Risks and Opportunities
Every sector has its own set of risks and opportunities. Before investing in materials ETFs, it is important to understand both sides of the equation so you can make a well-informed decision that aligns with your investment goals and risk tolerance.
Key Risks
- ✖Commodity price volatility directly impacts revenue and profitability
- ✖Economic slowdowns reduce demand for raw materials across all end markets
- ✖Environmental regulations and emissions targets increase compliance costs
- ✖Currency fluctuations affect international operations and competitiveness
Key Opportunities
- ✔Infrastructure spending globally drives demand for construction materials and metals
- ✔Electric vehicle production requires significant quantities of lithium, copper, and rare earth metals
- ✔Sustainable packaging demand is growing as companies shift away from single-use plastics
- ✔Supply constraints in key commodities support higher prices for producers
Should Beginners Invest in Materials ETFs?
For most beginners, materials sector ETFs are better suited as a secondary holding rather than a core portfolio position. Cyclical sectors like materials can deliver strong returns during economic expansions but may underperform or lose value during recessions. Understanding this cyclical nature requires a level of market awareness that many beginners are still developing.
If you are a beginner interested in the materials sector, consider starting with a small allocation of 5-10% of your portfolio in a low-cost materials ETF while keeping the majority of your investments in diversified, broad market funds. This approach lets you gain experience with sector investing without taking on excessive concentration risk. As you learn more about how the materials sector responds to economic cycles, you can adjust your allocation accordingly.
Recommended: This beginner-friendly ETF course on Udemy covers everything from ETF fundamentals to building a recession-proof portfolio in 7 days.