The transport sector is one of the best performers in the
market this year thanks to a reviving U.S. economy on improving
retail, manufacturing and labor data. The positive trends in the
economy suggest growing demand for movement of goods across many
Investors should note that transport is often considered a
barometer of broad economic health as it grows when U.S. economic
activity picks up. Further, the sector has a direct correlation
with the retail and manufacturing numbers (read:
Guide to Transportation ETF Investing
The optimism in the sector was further confirmed by the latest
earnings report from bellwether FedEx (
FedEx Results in Focus
The courier company posted solid first quarter fiscal 2014 (ended
August 31) results on growing customer demand across all
Earnings per share of $1.53, not only surpassed the Zacks
Consensus Estimate by 4 cents, but also increased from the
year-ago earnings of $1.45. Revenues grew 2% year over year to
While FedEx continues to be impacted by sluggish global economic
growth, it remains focused on cost cutting measures in its FedEx
Express unit. The FedEx Ground segment generated strong
profitability in the quarter.
Further, the company maintained its full-year earnings growth
guidance in the range of 7-13%. FedEx would likely raise its
shipping rates by an average of 3.9% at its domestic express
shipping business early next year. Additionally, pricing rise for
the ground and SmartPost business will be implemented later this
year. The series of price hike suggests a bullish outlook for the
company and the overall transport space.
Following the earnings beat, shares of FDX hit a new 52-week high
of $116.95 and climbed 5% at the close on elevated volume of
roughly three times a normal day.
This solid run was also felt in the ETF world, with
transportation ETFs surging. Currently, there are two ways to
play the space with ETFs and both gained in the day's session
all the Industrials ETFs here
FEDEX CORP (FDX): Free Stock Analysis Report
ISHARS-TRAN AVG (IYT): ETF Research Reports
SPDR-SP TRANSPT (XTN): ETF Research Reports
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iShares Dow Jones Transportation Average Fund (
This ETF tracks the Dow Jones Transportation Average Index,
giving investors exposure to the small basket of 21 securities.
The fund has accumulated $644.4 million in AUM while sees good
volume of trading. It charges 46 bps in fees and expense.
FedEx occupies the third position in the basket with 8.02% of
assets. The product is tilted towards the railroad at 30% while
delivery service sector makes up for nearly 20% share.
IYT gained 1.51% on the day and has a Zacks ETF Rank of 1 or
'Strong Hold' with a 'Medium' risk outlook. This suggests that
the ETF would outperform over the next one year (read:
Top Ranked Transportation ETF in Focus
SPDR S&P Transportation ETF (
This ETF follows the S&P Transportation Select Industry Index
and has managed an asset base of $46.5 million. The fund charges
35 bps in fees per year from investors and trades in a light
volume of just 12,000 share a day.
In total, the fund holds about 43 securities in its basket. Of
these firms, FDX takes the fourth spot, making up 13.17% of the
assets. The product is heavily exposed to trucking and airlines
as these make up roughly 60% of the total while air freight &
logistics accounts for 19% share (see more in the
The fund added 0.91% on the day and currently has a Zacks ETF
Rank of 3 or 'Hold' with a 'High' risk outlook.
In fact, both ETFs have been on a tear, beating out broad markets
in the year-to-date period. iShares and State Street products
returned 27.24% and 34.01%, respectively, compared with the gain
of 21.52% for SPDR S&P 500 (
Transport ETFs: Can the Surge Continue?
The stellar performance by FDX signals that the transport space
would continue to surge given the improving U.S. economy and
increasing investor confidence.
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