Fidelity MSCI Materials Index ETF (FMAT)

FMAT is a straightforward index ETF from Fidelity that holds the stocks in the MSCI Materials Index, a benchmark for large and mid-cap companies in the materials sector. The fund’s job is simple: track the index closely, charge very little, and let the holdings do the rest. There is no attempt to pick stocks or time cycles. The materials sector is cyclical and commodity-driven, so FMAT’s returns move sharply with the health of the global economy and the price of raw materials.

What the materials sector is and why it matters

Materials are the basic feedstocks of production. The sector includes mining companies that extract metals (aluminum, copper, zinc, rare earths) and minerals (phosphates, potash for fertilizer). It includes integrated steel producers and aluminum refiners. It includes chemical manufacturers that convert those raw materials into plastics, fertilizers, pharmaceuticals, and industrial inputs. It includes forestry companies and paper producers, and specialty-materials firms that make ceramics, glass, or engineered composites for aerospace and automotive. None of these are glamorous, but all are essential.

The demand for materials is driven by global economic activity. When the world is building — new homes, new factories, new cars, new infrastructure — demand for copper, steel, lumber, and chemicals is strong. Prices rise, and materials companies earn fat profit margins. When the global economy slows or contracts, construction crumbles, factory utilization falls, and materials demand collapses. Prices can halve in a downturn, and materials company profits evaporate. This cyclicality is the defining trait of the sector.

Commodity prices themselves are enormously important. A mining company’s revenues and profits depend not just on how much ore it produces but on the price it fetches. Oil prices, copper prices, gold prices, and agricultural commodity prices are set on global markets; individual companies have little control. A decline in copper price, even if demand stays healthy, can devastate a copper miner’s profit margin.

FMAT gives you exposure to all of this: the economic cycle, the commodity markets, and the operational excellence (or lack thereof) of the underlying companies.

FMAT’s holdings and sector composition

A typical FMAT portfolio includes large miners like Rio Tinto, Glencore, and Newmont (gold); chemical heavyweights like Linde, Dow Chemical, and Nucor (steel); and specialty-materials firms. The specific holdings shift as the index is reconstituted and companies’ market values change. Because FMAT is index-based, turnover is low — the fund adds and removes stocks only when the index itself changes, which is infrequent. This keeps costs down and minimizes tax drag.

The materials sector represents roughly 2–4% of the broad U.S. stock market, depending on the index and the time period. In global indices, materials weight more heavily. FMAT’s largest holdings are typically mega-cap miners and chemical producers, but the fund also includes mid-cap companies with exposure to specialized materials, packaging, and niche commodities.

Geographic diversification is important: many materials companies earn revenues globally. A miner’s profits depend on the health of the Chinese economy (massive consumer of metals and raw materials), the European economy, and the U.S. economy. FMAT’s holdings carry that global exposure, which can be a benefit (diversification) or a risk (if global growth slows, all holdings suffer simultaneously).

Economic sensitivity and volatility

FMAT is a cyclical, economically sensitive fund. In a strong economic expansion, FMAT typically rallies because materials demand is robust, prices are rising, and profit margins are wide. In a recession or slowdown, FMAT falls sharply, as demand collapses and prices tumble. This makes FMAT appropriate for investors who have conviction that the global economy is entering a period of growth, not contraction.

The volatility is substantial. A materials ETF is typically more volatile than the broad market, sometimes significantly so. In the sharpest recessions or commodity crashes, FMAT can lose 50% or more. In powerful recoveries, it can double. This is not a fund for the faint of heart or for investors who panic when portfolios swing downward.

Historically, materials sector returns have been lower than the broad market over very long periods, because commodity cycles lead to mean reversion: price spikes trigger excess supply and overinvestment, which eventually crushes prices and forces restructuring. Investors who buy materials at the peak of a boom cycle often regret it. But disciplined investors who buy during downturns or early in recovery cycles can do very well.

Use cases and when FMAT makes sense

FMAT is a cyclical-exposure tool. It is most useful for investors who want explicit commodity and materials exposure as part of a diversified portfolio. A portfolio built on U.S. and international equities, bonds, and real estate might benefit from a small allocation to materials (2–5% of total assets) for additional diversification and to capture the materials cycle when it turns.

FMAT can also be used as a tactical allocation. An investor who believes the global economy is poised to accelerate, that infrastructure spending will drive demand for metals and minerals, or that commodity prices are sustainably higher might increase exposure to FMAT. Conversely, if recession is looming, reducing FMAT exposure or exiting it entirely is sensible.

Some investors use FMAT as a hedge against inflation. When inflation spikes, commodity prices and materials equities can outperform other sectors, making FMAT a potential portfolio hedge during inflationary episodes.

The risks

Economic sensitivity is both a feature and a risk. If the global economy enters a sustained contraction, FMAT can lose a large fraction of its value quickly. There is no earnings cushion in materials; when demand falls, profits collapse almost immediately.

Commodity prices can crash for reasons unrelated to economic fundamentals. Geopolitical shocks, unexpected supply discoveries, technological disruption (e.g., battery advances that reduce demand for traditional metals), or simply a shift in commodity sentiment can drive prices down sharply, dragging FMAT with them.

Currency risk is embedded in FMAT’s holdings. Many materials companies have significant foreign revenues, and many commodities are priced in dollars on global markets. If the U.S. dollar strengthens sharply, foreign-revenue materials companies can see their profits decline in dollar terms, which can weigh on stock prices.

Regulatory and environmental risk is growing. Mining, chemicals, and forestry all face increasing environmental and social scrutiny. New regulations on carbon emissions, water use, or waste can increase costs substantially. Environmental liabilities and remediation costs can surprise investors. Companies that do not manage these risks well can underperform.

Comparing FMAT to alternatives

FMAT is a passive index ETF, so it is cheap, tax-efficient, and transparent. If you want exposure to the materials sector through an index, FMAT is a reasonable choice. Alternative index providers (Vanguard’s VGK materials exposure, iShares’ XME) offer similar vehicles with different fee structures and slightly different index definitions. Compare expense ratios and fund size to choose among them.

If you want active stock-picking in the materials space, Fidelity also offers active materials mutual funds and ETFs, but these charge higher fees and have more turnover. Whether active management adds value in materials is doubtful; commodity exposure is largely driven by macro factors and prices rather than company-specific stock-picking skill.

For broader diversification, consider combining a small FMAT allocation with holdings in other cyclical and defensive sectors. A portfolio that is purely materials is taking a concentrated bet on global growth and commodity prices; a more balanced portfolio uses FMAT as one piece of a larger mosaic.

How to research and evaluate FMAT

Start with the fund’s fact sheet, which details the holdings, sector breakdown, and expense ratio. Compare FMAT’s fee to alternatives to ensure you are getting a competitive rate.

Review the MSCI Materials Index composition. Understand which companies are the largest holdings and what commodities or subsectors they represent. Does the index lean toward mining or chemicals? Metals or forest products? That composition shapes FMAT’s behavior and risks.

Check FMAT’s performance over different market cycles — strong growth periods, recessions, periods of rising and falling commodity prices. Understand how responsive the fund is to macro factors. Compare its returns to the broader market (S&P 500 or total-market index) and to the MSCI Materials Index benchmark to verify that FMAT is tracking its index accurately.

Read commodity market analysis and economic forecasts to develop a view on whether materials are likely to perform well or poorly in your near-term outlook. FMAT is a macro tool; the right time to own it is when economic and commodity tailwinds are building. The wrong time is when recession is looming or commodity prices are already high.

Assess how much materials exposure you need. A small allocation (2–5%) to FMAT can provide sector diversification without taking on excessive cyclical risk. A larger position (10%+) is a meaningful bet on economic growth and should be entered only with conviction.