What says Christmas like Industrial Goods sector specific ETFs, right? Didn’t you hear something about the elves in Santa’s workshop putting together a portfolio that would triple the daily performance of the MSCI EM Industrial Conglomerates Index? Okay, maybe not. While it’s not seasonal, just because people are hanging Christmas lights doesn’t mean that the markets have stopped. Industrial goods are still a major driver for the economy and anyone interested in speculating on the future of the sector can use ETFs to make broad bets to that effect.
By far the most popular Industrial ETF is the Industrial Select Sector SPDR Fund (XLI). With an average volume of over 19 million shares, the SPDR fund trades at a heavier volume than any other industrial ETF by a factor of 35. SPDR is a trusted name in ETFs, typically producing the most popular funds for every sector and industrials are clearly no different. As is almost always the case for SPDR funds, the ETF has a goal of matching the performance of the corresponding S&P index for the sector, in this case the Industrial Select Sector of the S&P 500 Index. Other broad-based sector ETFs include the iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ) which follows the Dow Jones U.S. Industrials Index, and the Vanguard Industrials ETF (VIS).
The second most popular industrial ETF is the iShares Dow Jones Transportation Average Index Fund (IYT). Some of its biggest holdings include railroad companies Union Pacific Corporation (UNP) and Norfolk Southern Corp (NSC), shipping companies United Parcel Service (UPS) and FedEx Corporation (FDX), and airline Alaska Air Group, Inc. (ALK).
Another important subsector for industrials is water services, and there are two prominent ETFs that cover that segment. Invesco’s PowerShares Water Resources Portfolio (PHO) is based on the Palisades Water Index and its largest holdings include the Pall Corporation (PLL) and the URS Corporation (URS). Invesco also has the similar PowerShares Global Water Portfolio (PIO), which tracks the Palisades Global Water Index.
Aerospace and Defense
Finally, while the American manufacturing base has long been ailing, one segment continues to be going strong: aerospace and defense. As such, anyone wishing to speculate on the future of the industry could look at Invesco’s PowerShares Aerospace & Defense Portfolio (PPA). Based on the SPADE™ Defense Index, the fund’s top holdings include Honeywell International Inc. (HON) and The Boeing Company (BA).