Cash is pouring into metals and mining ETFs. These are the best buys, Bank of America says

Published Thu, Apr 7 202211:45 AM EDT

The surging mining and metals industry could still hold upside for long-term investors, according to Bank of America. Jared Woodard, investment and ETF strategist at the firm, initiated coverage of the exchange traded funds focused on metals and mining with a favorable rating. The industry has seen a massive influx of cash as the global economy has restarted from the depths of the Covid pandemic and commodity prices have soared. "The > 340% move registered in Metals & Mining since Covid lows has attracted historic inflows to the ETFs under our coverage. Cumulative flows have eclipsed $5bn, a 13x increase over the past 2 years," Woodard wrote in a note to clients on Wednesday evening. That large move and surge of cash means that investors looking for a short-term gain may be late to the party, but the group still has long-term potential, Woodard said. "We think Metals & Mining ETFs are vulnerable to a near-term pullback as prices have moved sharply higher in the past two months. That said, structural forces bolster our constructive outlook. Dollar-cost averaging strategies and buying on dips makes sense for investors looking to build exposure, in our view," Woodard wrote. Bank of America assigned a buy rating to two funds in the space: SPDR S & P Metals & Mining ETF (XME) and Global X Uranium ETF (URA) . The SPDR fund, which has gained about 34% in 2022, has big weights in old-school steel and aluminum companies. Cleveland-Cliffs , Steel Dynamics and Alcoa all appear in its top five holdings. Like many funds in the SPDR family, the metals and mining fund is relatively cheap, with an expense ratio of 0.35%. The Global X fund, meanwhile, focuses on uranium miners and gives investors significant international exposure. The fund's top holdings include Canada's Cameco Corp. and Australia's Paladin Energy. Just 5.4% of the fund is in U.S. stocks, while Canadian stocks hold the biggest weight, according to the firm's website. The Global X fund is up about 15% year to date and has an expense ratio of 0.69%. Uranium could see increased interest in the years ahead, as Russia's invasion of Ukraine has led some European countries to reconsider the use of nuclear power in the transition away from fossil fuels. On the negative side, Bank of America did caution against buying the iShares MSCI Global Metals & Mining Producers ETF (PICK) , citing a weak technical score and sizeable exposure to stocks with an underperform rating from the firm's analysts -CNBC's Michael Bloom contributed to this report.

A worker loads an aluminum coil onto a truck at the Arconic manufacturing facility in Alcoa, Tennessee, on Wednesday, March 9, 2022.

Luke Sharrett | Bloomberg | Getty Images

The surging mining and metals industry could still hold upside for long-term investors, according to Bank of America.