Making Money Alert
ETF Talk: Transportation Funds Could Get Your Portfolio Moving
06/01/2011
The debate on whether the U.S. economy is advancing again rages on, with bulls making the case that a slow and steady recovery remains in place. If the bulls are correct, and the overall economy is recovering, goods increasingly will be crisscrossing the country. Indeed, the transportation of goods in America is a gargantuan task, with 95% of this nation consisting of open space, as anyone who has flown across the country knows. Americans get goods via highways, railroads, air carriers and ships. And each of those sectors could represent solid investing opportunities.
That’s why I am keeping an eye on exchange-traded funds (ETFs) that track transportation indices. ETFs that have the same performance as transportation averages, such as the Dow Jones Transportation Average, let you ride U.S. economic growth. Here is a handful of transportation ETFs designed to do just that.
iShares Dow Transportation Index (IYT)
This ETF replicates, before fees and expenses, the Dow Jones Transportation Index. Coming off its 52-week low of 3,872.64, this ETF has only gone up. It now is near its 52-week high and it seems likely to climb further.
The Dow Jones Transportation Average consists of blue-chip stocks that won’t disappear anytime soon. Union Pacific (UP) is one of the fund’s 20 largest stocks, as are FedEx (FDX) and Southwest Airlines (LUV). I think this ETF will provide consistently steady growth for some time to come.
SPDR S&P Transportation ETF (XTN)
This ETF is a new way to take advantage of all the industry has to offer. This fund seeks to match, less fees and expenses, the performance of the S&P Transportation index. The S&P Transportation index holds shares in industry giants, such as Kansas City Southern (KSU). Also included are smaller companies such as airline operator SkyWest (SKYW) and regional railroad Genesee & Wyoming, Inc (GWR).
This ETF also is near its 52-week high. In addition, the underlying index itself has risen more than 55% since Jan. 1.
Guggenheim Airline ETF (FAA)
This ETF could take off with the airline industry’s recovery. FAA seeks to match, before fees and expenses, the price and performance of Guggenheim/NYSE Arca Global Airline ETF. The fund’s three largest holdings, as of May 31, were Southwest Airlines, 15.05%; United Continental Holdings (UAL), 14.50%; and Delta Air Lines, 14.47%.
The fund has traded between $35 and $40 since Jan. 1, but has been moving upwards since last month. The fund, however, has a trading volume well below the levels that I like to see before considering it for recommendation.
Guggenheim Shipping ETF (SEA)
For those of you who prefer seagoing transportation, then the Guggenheim Shipping Index (SEA) could be for you. The fund seeks to track the performance, before fees and expenses, of the Delta Global Shipping Index. None of the component companies are really household names, but this ETF owns shares in every major shipping company in the world. As world trade rises, so might this index. This fund also has too light of a trading volume for me to recommend it, since I like ETFs that offer ready liquidity without much price fluctuation.
Here’s a further word of caution: the shipping industry is volatile. International shipping is very competitive, and shipping companies have been known to start ugly price wars. If you do decide on this ETF, be sure you have well-positioned stops to reduce your risk.
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, consider subscribing to my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.