The SPDR XME ETF seeks to replicate the S & P500 Metals & Mining Index which includes 29 US companies in the sector, with an average market capitalization of $ 5 billion.
As for the sub-segments of activity, the most important is steel (49.8%), followed by aluminum (12.1%), gold (11.4%), coal and fuel (9.3%), Silver (7.3%) copper (5%) and miscellaneous (5%). It is therefore a fairly concentrated index in terms of the number of securities, and rather diversified in the underlying industries, despite the preponderance of steel. XME is equally weighted, which makes it possible for investors to diversify the exposure, between large caps and small caps but also according to specializations by minerals.
After several years of decline, metal prices began to recover in early 2016, due to Chinese capacity reduction announcements (mainly steel and aluminum) and optimism about the victory of Donald Trump in the US presidential elections, linked to the promise of a major infrastructure program, as key triggers. Iron ore increased sharply in the early months of 2017, which is linked to the western anti-dumping measures that have been incorporated by China. In addition, copper is now at its highest level in two years, reaching $ 6,400 per ton, taking advantage of optimistic outlook on the Chinese economy. In addition, China could also ban imports of scrap metal from certain metals, which would increase demand for refined copper.
XME is an extremely volatile investment vehicle, which is very sensitive to changes in demand, and therefore to GDP growth, but also to supply adjustments. The return to a more inflationary environment is a positive factor for the sector.
The 0.35% fee is in the average of our sample. The outstanding amount of the Fund is $ 748 million. After a 51.6% decline in 2015, XME grew by 103% in 2016 and so far by 6.7% in 2017.
Diversification is at the heart of the strategy of the major mining companies, which want to develop capacity in the sectors of the future (Aluminum, Copper ...) and reduce them in the struggling sectors (Coal ...). The sector depends on two main factors: demand, especially for infrastructure mainly from China and the USA, but also from large emerging countries such as India, but above all from the significant overcapacities especially for Chinese steel. The scenario of a drastic cut in Chinese supply does not appear to be on the agenda, especially in iron ore in which US companies are highly exposed.
The current situation is therefore strongly related to demand dynamics, and therefore to China's monetary support to its economy (real estate / construction in particular), in a particular political context (renewal of Mr XI by the CCP) a bit fragile despite the ongoing reflation of the world economy.
