Inflation is at record levels and investors have been speculating on which companies could benefit the most from rising prices. One of the hottest exchange-traded funds (ETFs) out there right now is the SPDR S&P Metals and Mining ETF (NYSE Arca: XME). In the past year, the fund has skyrocketed 73% while the S&P 500 is up a more modest 17%.
With exposure to aluminum, coal, copper, diversified metals, gold, silver, and steel, investors get a good mix of everything with the fund, and so it's little surprise that it has been so popular of late. The bulk of its exposure is to steel, which makes up 43% of the fund's composition, followed by coals and consumable fuels at over 13%.
At 32 holdings, this isn't a terribly large fund. The top three stocks in the ETF are aluminum producer Alcoa Corporation (NYSE:AA), gold miner Newmont Corporation (NYSE:NEM), and mining company Freeport-McMoRan (NYSE:FCX), which each account for more than 4% of the ETF's total weight.
The fund pays a yield but at less than 1%, this probably isn't going to be the reason you'll want to invest in it. Instead, it's the opportunity to benefit from rising commodity prices amid inflation and cashing in on the stronger earnings prospects of the companies that the ETF holds.
However, investors will want to be cautious because while commodity prices are hot now, that doesn't mean the situation won't change. Over the past 10 years, this ETF has risen by just 27% -- well below the S&P 500's gains of over 225%.
