The basic materials sector on Wall Street includes companies engaged in discovering, developing and processing raw materials that serve as essential inputs for other industries, making it closely tied to economic cycles. Also known as the basic materials sector, it primarily comprises five industries: metals and mining, chemicals, construction materials, paper and forest products, and containers and packaging, covering products ranging from metals and fertilizers to cement, paper and industrial packaging.
Over the past year, the sector has delivered mixed performance. Broad materials indices such as the S&P 500 Materials Select Sector SPDR XLB has advanced 15.3% over the last 12 months, as of Jan. 13. Metals and mining and some commodities names have done well, but construction materials and chemicals often lag due to slower global growth and inflation concerns. The sector’s cyclical nature means it will still be sensitive to global economic conditions, interest rates and China’s stimulus effectiveness. If macro growth disappoints or inflation re-accelerates, materials stocks could see renewed pressure.
Yet, the outlook for 2026 looks promising. Earnings for materials companies are expected to grow strongly, driven by pricing power from tariffs on steel and robust packaging demand, which could make this one of the best performance years in several years. Demand drivers like electrification, infrastructure spending and rising consumption of industrial commodities such as lithium, copper and rare earths could also support growth.
Materials funds can serve as a portfolio diversifier and inflation hedge because raw material prices often rise with inflation and real-asset demand. As markets rotate away from overvalued segments and search for value in cyclicals, well-managed materials mutual funds may capture growth while balancing risk across multiple industries within the sector.
Hence, astute investors might consider such funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected two industrial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio.
Fidelity Select Materials FSDPX primarily invests in common stocks of companies involved in the production, mining, processing, or distribution of raw materials and intermediate goods, including both domestic and foreign issuers, selected through fundamental, market and economic analysis.
Ashley Fernandes has been the lead manager of FSDPX since April 2022. Three top holdings for FSDPX are 16.6% in Linde, 8.5% in Ecolab and 5.2% in The Mosaic.
FSDPX’s 3-year and 5-year annualized returns are 2.3% and 7.2%, respectively. Its net expense ratio is 0.69%. FSDPX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Franklin Gold and Precious Metals FKRCX primarily invests in companies engaged in gold and precious metals operations worldwide, with a strong emphasis on non-U.S. issuers. It may invest across all market sizes, including significant exposure to small and mid-cap companies, and follows a non-diversified approach.
Steve M. Land has been the lead manager of FKRCX since April 1999. Three top holdings for FKRCX are 5.1% in Newmont, 3.9% in Agnico Eagle Mines and 3.7% in G Mining.
FKRCX’s 3-year and 5-year annualized returns are 48.4% and 21.1%, respectively. Its net expense ratio is 0.87%. FKRCX has a Zacks Mutual Fund Rank #2.
American Century Global Gold ACGGX primarily invests in companies involved in mining, processing, fabrication, distribution, exploration, or other activities related to gold, and follows a non-diversified investment approach.
Mattia Bacciardi has been the lead manager of ACGGX since May 2025. Three top holdings for ACGGX are 5.9% in Agnico Eagle Mines, 5.7% in Zijin Mining and 5.4% in Kinross Gold.
ACGGX’s 3-year and 5-year annualized returns are 44.8% and 20.1%, respectively. Its net expense ratio is 0.91%. ACGGX has a Zacks Mutual Fund Rank #1.
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This article originally published on Zacks Investment Research (zacks.com).