Top 10 Industrial Sector ETFs

With market trends by and large well-correlated within S&P 500 sectors we view each sector separately. Currently all markets are battling a global economic contraction occasioned by eurozone debt and fiscal issues (again). This issue has put most of the 17 members in the EMU in or near recession. China has also seen their economy slow which is a major importer of goods and materials from emerging market countries. The U.S. is not alone in feeling the impact from all this and is still plodding along with slow growth, high unemployment and home prices still weak.

The industrial sector feels the pressure from all these issues clearly.

We offer general guidance that average investors can utilize without too much trading and is reasonably effective. We do this by using a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short.

Premium members to the ETF Digest receive added signals when markets become extended such as DeMark indicators trigger an exit from overbought/oversold conditions. 

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called “enhanced” indexes that attempt to achieve better performance through more active management of the index.

Where competitive issues exist and/or repetitive issues available at a fee cost saving we mention those as other choices. New issues are coming to market consistently (especially globally) and sometimes these issues will need to become more seasoned before they may be included at least in our listings.

#10. iShares S&P Global Industrials ETF (NYSE: EXI)  

EXI follows the S&P Global Industrials Index which covers the mostly developed market constituents in the U.S. and overseas. The fund was launched in September 2006. The expense ratio is 0.48%. AUM equal $174M with average daily trading volume of 17K shares. As of May 2012 the annual dividend yield was 2.37% and YTD return 1.87%. The 1 YR return was -12.15%.

An alternative choice could be SPDR S&P International Industrial Sector ETF IPN which follows the S&P Developed Ex-U.S. BMI Industrial Sector Index. It was launched in July 2008. The expense ratio is 0.50%. AUM equal only $11.3M and average daily trading volume is low at 12K shares.

Data as of May 2012

EXI Top Ten Holdings & Weightings

•    General Electric Co (GE): 8.04%

•    Siemens AG (SIE): 3.31%

•    United Technologies Corp (UTX): 2.88%

•    United Parcel Service Inc (UPS) (UPS): 2.85%

•    Caterpillar Inc (CAT): 2.60%

•    3M Co (MMM): 2.41%

•    Boeing Co (BA): 2.23%

•    Union Pacific Corp (UNP): 2.06%

•    Honeywell International, Inc. (HON): 1.84%

•    ABB, Ltd. (ABBN): 1.65%

 

 

#9. iShares Dow Jones U.S. Aerospace & Defense ETF (NYSE: ITA) 

ITA follows the Dow Jones U.S. Select Aerospace & Defense Index which measures this sector of the U.S. equity market. The fund was launched in May 2006. The expense ratio is 0.48%. AUM equal $97M and average daily trading volume is over 10K shares. As of May 2012 the annual dividend was 0.88% and YTD return around 1.60%. The 1 YR return was 1.60%.

Data as of May 2012

ITA Top Ten Holdings & Weightings

•    United Technologies Corp (UTX): 9.44%

•    Boeing Co (BA): 8.67%

•    Precision Castparts Corp. (PCP): 6.39%

•    Lockheed Martin Corporation (LMT): 6.11%

•    Raytheon Company (RTN): 5.54%

•    General Dynamics (GD): 5.42%

•    Northrop Grumman Corp (NOC): 5.02%

•    Goodrich Corporation (GR): 4.93%

•    L-3 Communications Holdings Inc (LLL): 3.61%

•    Rockwell Collins, Inc. (COL): 3.58%

 

 

#8. PowerShares Aerospace & Defense ETF (NYSE: PPA)  

PPA follows the SPADE Defense Index which also includes homeland security and the usual aerospace and defense constituents. The fund was launched in October 2005. The expense ratio is 0.60%. AUM equal roughly $50M and average daily trading volume is over 13K shares As of May 2012 the annual dividend yield was 1.03% and YTD return 1.91%. The 1 YR return was -7.69%.

This sector is narrower than the broader features of XLI for example.

Data as of May 2012

PPA Top Ten Holdings & Weightings

•    United Technologies Corp (UTX): 5.73%

•    Honeywell International, Inc. (HON): 5.72%

•    Boeing Co (BA): 5.71%

•    Lockheed Martin Corporation (LMT): 5.15%

•    General Dynamics (GD): 4.65%

•    Goodrich Corporation (GR): 4.53%

•    Northrop Grumman Corp (NOC): 4.51%

•    Raytheon Company (RTN): 4.50%

•    Precision Castparts Corp. (PCP): 4.46%  

•    Textron Inc (TXT): 4.02%

  

#7. PowerShares Dynamic Industrials ETF (NYSE: PRN) 

PRN follows the Dynamic Industrials Sector Intellidex Index. This is another of the “enhanced” indexes which uses the same constituents as other passive indexes utilize but then applies proprietary quantitative analysis to assemble and more actively manage the index. The fund was launched in October 2006. The expense ratio is 0.60%. AUM equal $27M and average daily trading volume is 4K shares. As of May 2012 the annual dividend yield was 0.28% and YTD return 3.47%. The 1 YR return was -9.40%. 

Enhanced indexes may outperform on the upside but may underperform as markets retreat.

Data as of May 2012

PRN Top Ten Holdings & Weightings

•    Tyco International Ltd (TYC): 2.73%

•    United Parcel Service Inc (UPS) (UPS): 2.62%

•    United Continental Holdings Inc (UAL): 2.62%

•    Delta Air Lines Inc (DAL): 2.59%

•    W.W. Grainger, Inc. (GWW): 2.58%

•    Northrop Grumman Corp (NOC): 2.54%

•    FedEx Corporation (FDX): 2.53%

•    L-3 Communications Holdings Inc (LLL): 2.50%

•    Textron Inc (TXT): 2.50%

•    Lockheed Martin Corporation (LMT): 2.50%

 

 

#6. First Trust Industrials AlphaDEX ETF FXR 

FXR follow the StrataQuant Industrials Index which, like PRN, is another “enhanced” index applying proprietary quantitative analysis applications to the basic sector. The fund was launched in May 2007. The expense ratio is .70%. AUM equal nearly $64.4 million while average daily trading volume is 40K shares. As of early February 2012 the annual dividend yield was .58% and YTD return 10.60%. The one year return was -1.17%.

Once again just comparing the rates of return you can see the more volatile performance for both FXR and PRN versus conventional index linked ETFs. The makes trading issues more significant.

Data as of May 2011

FXR Top Ten Holdings & Weightings

•    Exelis Inc (XLS): 2.05%

•    Thomas & Betts Corporation (TNB): 1.95%

•    Wesco International, Inc. (WCC): 1.83%

•    ITT Corp (ITT): 1.76%

•    Lincoln Electric Holdings, Inc. (LECO): 1.72%

•    W.W. Grainger, Inc. (GWW): 1.70%

•    Chicago Bridge & Iron Company (CBI): 1.69%

•    Carlisle Companies, Inc. (CSL): 1.67%

•    AECOM Technology Corporation (ACM): 1.61%

•    Oshkosh Corporation (OSK): 1.61%

#5. Guggenheim S&P 500 Equal Weight Industrials ETF (NYSE: RGI) 

RGI follows the S&P Equal Weight Industrials Index which uniquely breaks the index into equal weightings allowing investors the opportunity to evaluate the entire sector without the heavier weightings we’ve seen in the bigger names where a company like GE would be dominant. The fund was launched in November 2006. The expense ratio is 0.50%. AUM equal $26M while average daily trading volume is 9K shares.

The former company Rydex has struggled with ownership issues when the founder passed away which accounts for its low AUM; however, Guggenheim has now taken over and with a greater marketing presence should revive a good product. As of May 2012 the annual dividend yield was 1.96% and YTD return 2.47%. The 1 YR return was -6.45%.

Data as of May 2012 

RGI Top Ten Holdings & Weightings 

•    Avery Dennison Corp (AVY): 1.80%

•    Norfolk Southern Corporation (NSC): 1.80%

•    Masco Corporation (MAS): 1.79%

•    Ingersoll-Rand PLC (IR): 1.78%

•    L-3 Communications Holdings Inc (LLL): 1.77%

•    Equifax, Inc. (EFX): 1.76%

•    Roper Industries, Inc. (ROP): 1.76%

•    CSX Corp (CSX): 1.75%

•    Tyco International Ltd (TYC): 1.74%

•    Iron Mountain Inc (IRM): 1.73%

#4. PowerShares Small Cap Industrials ETF (PSCI) 

PSCI follows the S&P SmallCap 600 Industrials Index which consists of those industrial subsector constituents from the overall index. The fund was launched in April 2010. The expense ratio is 0.29%. AUM equal $31M and average daily trading volume is 2K shares.

As of May 2012 the annual dividend yield was 0.66% and YTD return 1.22%. The 1 YR return was -6.51%.

Data as of May 2012 

PSCI Top Ten Holdings & Weightings 

•    Robbins & Myers, Inc. (RBN): 2.97%

•    Teledyne Technologies Inc (TDY): 2.90%

•    Old Dominion Freight Lines (ODFL): 2.81%

•    Toro Company (TTC): 2.68%

•    Actuant Corp Class A (ATU): 2.48%

•    Moog, Inc. A (MOG.A): 2.43%

•    EMCOR Group, Inc. (EME): 2.31%

•    Belden, Inc. (BDC): 2.18%

•    Mueller Industries Inc (MLI): 2.18%

•    A.O. Smith Corporation (AOS): 2.17%

#3. iShares Dow Jones U.S. Industrial Sector ETF (IYJ) 

IYJ follows the Dow Jones U.S. Industrials Index. The fund was launched in June 2000. The expense ratio is 0.48%. AUM equal $363M and average daily trading volume is over 65K shares. As of May 2012 the annual dividend yield was 1.20% and YTD return 4.31%.

The 1 YR return was -4.89%.

Data as of May 2012

IYJ Top Ten Holdings & Weightings

•    General Electric Co (GE): 12.20%

•    United Technologies Corp (UTX): 4.05%

•    Caterpillar Inc (CAT): 3.76%

•    3M Co (MMM): 3.54%

•    United Parcel Service Inc (UPS) (UPS): 3.46%

•    Union Pacific Corp (UNP): 3.32%

•    Boeing Co (BA): 3.32%

•    Honeywell International, Inc. (HON): 2.60%

•    Emerson Electric Co. (EMR): 2.23%

•    Deere & Co (DE): 2.06%

 

 

 

#2. Vanguard Industrials ETF (VIS)
VIS follows the MSCI US Investable Market Industrials 25/50 Index which covers a similarly wide spectrum of constituents as XLI. The fund was launched in September 2004. The expense ratio is 0.19%. AUM equal $457M while average daily trading volume is low at 47K shares. The lighter volume indicates Vanguard’s emphasis on buy and hold especially with financial advisors. As of May 2012 the annual dividend yield was 1.92% and YTD return 4.38%.

The 1 YR return was -5.07%. VIS trades commission free at Vanguard.

Data as of May 2012

VIS Top Ten Holdings & Weightings

•    General Electric Co (GE): 12.20%

•    United Technologies Corp (UTX): 4.05%

•    Caterpillar Inc (CAT): 3.76%

•    3M Co (MMM): 3.54%

•    United Parcel Service Inc (UPS) (UPS): 3.46%

•    Union Pacific Corp (UNP): 3.32%

•    Boeing Co (BA): 3.32%

•    Honeywell International, Inc. (HON): 2.60%

•    Emerson Electric Co. (EMR): 2.23%

•    Deere & Co (DE): 2.06%

 

 

#1. SPDR Industrials ETF (XLI)
XLI follows the Industrial Select Sector Index that contains constituents from a wide variety of U.S. manufacturers. The fund was launched in December 1998. The expense ratio is 0.18%. AUM equal $2,789M and average daily trading volume is over 15M shares. As of May 2012 the annual dividend yield was 1.67% and YTD return 3.35%. The 1 YR return was -5.05%.

An alternative issue Focus Morningstar Industrials Index ETF (FIL) was recently launched by FocusShares. It is too new to rate for now but clearly the fees are low and commission free trading is available for Scottrade customers.  

Both ProShares and Direxion Shares maintain leveraged long and short ETFs for hedging or speculation needs.

Data as of May 2012

XLI Top Ten Holdings & Weightings

•    General Electric Co (GE): 10.98%

•    United Technologies Corp (UTX): 5.53%

•    United Parcel Service Inc (UPS) (UPS): 5.46%

•    Caterpillar Inc (CAT): 5.08%

•    3M Co (MMM): 4.56%

•    Boeing Co (BA): 4.28%

•    Union Pacific Corp (UNP): 4.21%

•    Honeywell International, Inc. (HON): 3.55%

•    Cummins Inc (CMI): 2.93%

•    Emerson Electric Co. (EMR): 2.92%

 

 

We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we’re sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.

Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity

Established linked index even if “enhanced”
Good performance or more volatile if “enhanced” index
Average to higher fee structure
Good portfolio suitability or more active management if “enhanced” index
Decent liquidity

Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity

Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

 

The industrial sector like others had a volatile 2011 and now is rapidly recovering as 2012 begins. It’s interesting to note the more obvious performance differences with enhanced index related ETFs like PRN and FXR indicating the need for more trading from our view. This may also mean enhanced returns for those willing to trade just a little more.

It’s good to see a small cap sector like PSCI gain more investor acceptance with AUM growing substantially just over the past quarter.

There is a lot to choose from in terms of indexes linked to industrial sector ETFs. Some are passive and duplicative relatively. It’s essential to remember it’s really a game of battleship for sponsors seeking to be first to a sector space or just being competitive in the space. This is their business interest apart from your investment interest. You should always ignore their interests and align your choices with what serves your objectives best.

New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab’s ETFs and Scottrade’s Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned. 

As stated with other sectors, remember ETF sponsors must issue and their interests aren’t aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

For further information about portfolio structures using technical indicators like DeMark and other indicators see www.etfdigest.com. You may follow us on Facebook as well and join our group conversations. 

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