The transportation industry has long been a key player in the
American economy. The industry also occupies an important niche in
the world market and involves the movement of freight and
passengers through different modes such as rail, trucks, ship, and
The industry is highly competitive, capital intensive, and depends
largely on the global demand for exports and imports. Furthermore,
this industry has a direct correlation with the retail and
So far, 2013 has proven to be a good year for the transportation
industry. Thanks mainly goes to transportation companies in North
America which have a broadly stable outlook, despite sluggishness
in the U.S. and global economies (see:
Transport ETFs: Can the Surge Continue?
As the U.S. economy continues to recover, the sun will shine for
the transportation industry. Further, the slow but steadily
recover in the manufacturing and retail markets will also benefit
At a time when markets are on a high, transportation ETFs represent
a good investment opportunity. This is why they are often
considered to be a barometer of broad economic health, as they
indicate that more goods are being moved around, and business
activity is gaining strength (Read:
Guide to Transportation ETF Investing
Moreover, positives from the transportation industry were absorbed
early by investors this year. Almost all the funds in the space
have given strong returns with double-digit YTD gains not uncommon.
One shouldn't miss this opportunity as this space has more to
offer. For investors who wish to capitalize on the current
opportunity we have the iShares Dow Jones Transportation Average
), which is Zacks ETF Rank #1 (Strong Buy) fund with a medium risk
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the
context of our outlook for the underlying industry, sector, style
box, or asset class. Our proprietary methodology also takes into
account the risk preferences of investors. ETFs are ranked on a
scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive
one of three risk ratings, namely, Low, Medium, or High.
The aim of our models is to select the best ETFs within each risk
category. We assign each ETF one of five ranks within each risk
bucket. Thus, the Zacks ETF Rank reflects the expected return of an
ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio
in the U.S. transportation market, we have taken a closer look at
iShares Dow Jones Transportation Average Fund
Launched in October 2003, IYT represents the most popular way to
track the transport sector. The fund tracks the Dow Jones
Transportation Average Index.
Volume and AUM are both impressive, ensuring that the product has
tight bid ask spreads for virtually all investors. Despite this,
the product does have a relatively high expense ratio, coming in at
46 basis points a year (See all the
The fund manages an asset base of $590.7 million and trades at
volume levels of more than 516,000 shares a day. This asset base is
invested in a small basket of 21 securities.
The ETF is heavily exposed to the railroad industry as this segment
makes up nearly 30% of the portfolio. Delivery services, trucking
and airlines also get double-digit allocation in the fund with a
share of 19.46%, 18% and 14.25%, respectively.
Top holdings include railroad operator Union Pacific at roughly
13.07% of assets while Kansas City Southern and FedEx take the next
two spots making up nearly 16.7% of the total assets between them
3 Hot Sector ETFs Surging to #1 Ranks
The fund has delivered an impressive year-to-date return of 16% and
gives a decent yield of 0.94% annually. And with positive trends in
both the domestic and global markets, this cyclical play could
again lead the way higher as we close out 2013.
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FEDEX CORP (FDX): Free Stock Analysis Report
ISHARS-TRAN AVG (IYT): ETF Research Reports
KANSAS CITY SOU (KSU): Free Stock Analysis
UNION PAC CORP (UNP): Free Stock Analysis
UTD PARCEL SRVC (UPS): Free Stock Analysis
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