Should You Invest in the Fidelity MSCI Materials Index ETF (FMAT)?

The Fidelity MSCI Materials Index ETF (FMAT) offers passively managed, low-cost exposure to the U.S. materials sector, with an industry-leading expense ratio of 0.08% and $425.5 million in assets under management. While diversifying across 103 holdings, the fund shows significant concentration, with its top 10 positions, including Linde Plc (16.08%), accounting for 57.61% of assets. As of September 29, 2025, FMAT has returned 8.94% year-to-date but is down 3.43% over the last year, positioning it as a medium-risk option with a Zacks ETF Rank of 3 (Hold) for targeted sector allocation.

Analysis

The Fidelity MSCI Materials Index ETF (FMAT) presents a mixed profile for investors seeking exposure to the U.S. materials sector. Its primary appeal is its cost-effectiveness, featuring an annual expense ratio of 0.08%, which the article identifies as the least expensive in its product space. With $425.5 million in assets, it is an average-sized fund. However, despite holding 103 stocks for diversification, the ETF exhibits significant concentration risk; its top 10 holdings account for 57.61% of total assets, with Linde Plc (LIN) alone comprising 16.08%. This structure makes the fund's performance heavily dependent on a few key companies. Performance data as of September 29, 2025, shows a recent positive turn with an 8.94% year-to-date gain, but this is contrasted by a 3.43% loss over the last year. Critically, the underlying Materials - Broad sector is ranked 15th out of 16 Zacks sectors, placing it in the bottom 6% and signaling significant industry-wide headwinds. This poor sector outlook, combined with a beta of 1.06 and a Zacks ETF Rank of 3 (Hold), positions FMAT as a medium-risk, tactical tool rather than a compelling core investment.

Key Decisions for Investors

• Given the underlying Materials sector's poor Zacks rank in the bottom 6%, investors should consider FMAT a tactical allocation rather than a core long-term holding, despite its attractive low expense ratio.
• Investors must monitor the performance of top holdings, particularly Linde Plc at 16.08% of assets, as the fund's high concentration introduces significant single-stock risk that could outweigh sector-wide movements.
• For those seeking greater liquidity or broader exposure, it is prudent to evaluate alternatives like the much larger Materials Select Sector SPDR ETF (XLB), which offers a similar 0.08% expense ratio, or the globally focused FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR).
• A potential catalyst for a more bullish stance on FMAT would be a marked improvement in the Zacks Industry Rank for the Materials - Broad sector, which would signal a fundamental shift in the industry's outlook.