The Basic Materials sector ranks eighth out of the 11 sectors as detailed in our Q2'18 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Basic Materials sector ranked ninth. It gets our Neutral rating, which is based on an aggregation of ratings of 13 ETFs and 11 mutual funds in the Basic Materials sector.

See a recap of our Q1'18 Sector Ratings here. Figures 1 and 2 show the best and worst rated ETFs and mutual funds in the sector. Not all Basic Materials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 263). This variation creates drastically different investment implications and, therefore, ratings.

Investors should not buy any Basic Materials ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, you should buy a basket of Attractive-or-better rated stocks and avoid paying undeserved fund fees. Active management has a long history of not paying off.

] We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds. 100 million for inadequate liquidity. 100 million and do not meet our liquidity minimums. 100 million for inadequate liquidity. First Trust Materials AlphaDEX Fund (FXZ) is the top-rated Basic Materials ETF and Fidelity Select Chemicals Portfolio (FSCHX) is the top-rated Basic Materials mutual fund. Both earn a Neutral rating.

PowerShares S&P Small Cap Materials Portfolio (PSCM) is the worst rated Basic Materials ETF and Rydex Series Basic Materials Fund (RYBMX) is the worst rated Basic Materials mutual fund. PSCM earns an Unattractive rating and RYBMX earns a Very Unattractive rating. Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund's performance is only as good as its holdings' performance. Don't just take our word for it, see what Barron's says on this matter.

Analyzing each holding within funds is no small task. Our Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care.

Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions. Figures 3 and 4 show the rating landscape of all Basic Materials ETFs and mutual funds. Disclaimer: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme. ]Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts. ]Ernst & Young's recent white paper "Getting ROIC Right" proves the superiority of our holdings research and analytics.

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