With rising interest a hot topic these days, investors looking
to stay long stocks should consider the industrial sector.
As was noted last week, the industrial sector has historically
remained sturdy during rising interest rate environments. In
terms of performance when rates rise, industrials are second only
to consumer discretionary.
Industrial ETFs For Rising Interest Rates
Industrials have lived up to their billing as decent rising
rates plays as the Industrial Select Sector SPDR (NYSE:
), the Vanguard Industrial ETF (NYSE:
) and the iShares U.S. Industrials ETF (NYSE:
) have been solid since May 22, the day Federal Reserve tapering
talk really became an everyday topic.
Combined, those three ETFs have about $8 billion in assets
under management with XLI controlling the bulk at $5.6 billion.
They are large, liquid and, particularly in the case of VIS,
cheap. However, when it comes to year-to-date performance, that
trio is not the best of the industrial ETF lot.
In fact, industrial ETFs stand as another example of the
problems encountered when
investors judge ETFs by size
. The problem being returns usually get left on the table.
Take the example of the PowerShares Dynamic Industrials Sector
). The $59.6 million fund has jumped 21.1 percent this year,
easily outpacing XLI. PRN is home to many of the same stocks that
are found in larger industrial ETFs, including companies that
going to be vulnerable to sequestration
That includes Raytheon (NYSE:
), General Dynamics (NYSE:
) and Boeing (NYSE:
), all PRN top-10 holdings. PRN sets itself apart with larger
exposure to small-caps then is generally found in standard
industrial ETFs. Small-cap growth and value names combine for
about 41 percent of PRN's weight. Liquidity nuts will cringe at
PRN's averaged daily volume of 16,200 shares, but the reality is
there has only been one day in the previous four quarters where
this fund has seen the midpoint of its bid/ask spread fall more
than one percent below its net asset value,
according to PowerShares data
Speaking of small-cap industrials, the PowerShares S&P
SmallCap Industrials Portfolio (NASDAQ:
) is the pure-play option on that theme. PSCI is home to 84
stocks. It's top-10 holdings include AO Smith (NYSE:
), Toro (NYSE:
) and Curtiss-Wright (NYSE:
For the year ending June 30, the S&P SmallCap 600 Capped
Industrials Index outperformed the S&P SmallCap 600 Index by
420 basis points,
according to PowerShares data
Like PRN, PSCI is not heavily traded (average daily turnover
of just over 9,500 shares). However, PSCI is like PRN in another
way: It rarely, rarely meaning one day in the previous four
quarters, sees the midpoint of its bid/ask spread rise to a one
percent premium or discount to NAV.
Not to be forgotten in the industrial ETF conversation is the
First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE:
). FXR follows
the same AlphaDEX methodology
that has help an array of other First Trust sector and
international ETFs deliver impressive returns.
That includes evaluating potential holdings on factors like
price appreciation, cash flow to price and return on assets. FXR,
which has $229.1 million in AUM, is up nearly 19 percent
year-to-date, a tidy out-performance of some of its larger
rivals. No stock accounts for more than 1.9 percent of FXR's
weight and the ETF has a median market value of $5.5 billion,
indicating decent exposure to mid-cap names.
Top holdings include R.R. Donnelley (NYSE:
), ITT Corp. (NYSE:
), Trinity Industries (NYSE:
) and Chicago Bridge & Iron (NYSE:
For more on ETFs, click
Disclosure: Author does not own any of the securities
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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