Not All Industrial ETFs Created Equal, S&P Says

Home to cyclical, economically sensitive companies, industrial ETFs can be useful for investors looking to gauge the health of the broader economy. The sector accounts for almost 10.4 percent of the S&P 500's weight is home to a fair number of ETFs, but not all are created equal in the eyes of S&P Capital IQ.

In a new research note, S&P Capital IQ highlights four industrial sector ETFs, rating three of the funds Overweight and one Marketweight. The Market weight-rated fund is the PowerShares Dynamic Industrials Sector Portfolio PRN.

PRN is pricier than some of its rivals with an expense ratio of 0.65 percent and the fund is by no means large with $27.8 million in assets under management. The fund has been a decent performer this year with a gain of almost 3.2 percent. Top-10 holdings include Northrop Grumman NOC, Textron TXT, Deere DE and Eaton ETN.

S&P gave an Overweight rating to the Industrial Select Sector SPDR XLI, the largest of the industrial sector ETFs. XLI is up almost six percent year-to-date and charges just 0.18 percent per year. XLI devotes a quarter of its weight to aerospace and defense names. Top-10 holdings in the ETF include General Electric GE, UPS UPS, Boeing BA and Caterpillar CAT.

The Vanguard Industrials ETF VIS also garnered an Overweight rating from S&P. That fund has surged nearly seven percent this year and charges 0.19 percent per year, making it cheaper than 86 percent of comparable funds, according to Vanguard.

VIS had $495.1 million in AUM at the end of June and allocated almost 21 percent of its weight to aerospace and defense names at that time. The ETF's top-10 holdings include General Electric, United Technologies UTX, 3M MMM and Caterpillar.

The $476.8 million iShares Dow Jones U.S. Industrial Sector Index Fund IYJ also received an Overweight rating. IYJ has topped VIS and XLI in terms of performance this year, but is much more expensive with annual fees of 0.47 percent. Home to 240 stocks, IYJ's top-10 lineup is similar to what is found with VIS and XLI as General Electric, 3M, United Technologies, Boeing and Caterpillar all are featured in this fund as well.

Regarding risk considerations, "XLI received a favorable assessment, while both VIS and IYJ were considered Market weight. PRN was ranked Underweight. Looking at the factors influencing these rankings, we note that three of the four funds received a favorable S&P Quality Ranking input, reflecting historical growth and stability of earnings. Only PRN received the lower Marketweight ranking in this area. We also point out that companies in the XLI portfolio carry above-average credit ratings relative to holdings of other equity ETFs, while those in the PRN portfolio were below average, contributing to the ETF's negative assessment. Both VIS and IYJ receive a Marketweight ranking based on credit ratings," S&P said in the note.

For more on analyst ratings for ETFs, click here.