Buffett's BNI Buy Boosts Transports ETF

Warren Buffett's $34 billion purchase of Burlington Northern Santa Fe(BNI Quote) sent the transports up 4.5% at the open Tuesday, and iShares Dow Jones U.S. Transportation Index (IYT Quote) up 4.7%. At 11.38% of IYT as of yesterday's close, BNI is the largest holding in the ETF.

Shares of BNI gained more than 28%, and with the deal valued at $100 per share, shares have only about 3% more to go. BNI's advance accounts for nearly 3% of IYT's gain, and the halo effect lifted other railroads such as Union Pacific(UNP Quote) and CSX(CSX Quote) by 5.5% and 6.5% in early trading. Those two firms account for 8.12% and 4.92%, respectively, of IYT's assets.

As the economic slowdown cut into the profits of major railroads, traffic dropped and shares fell. The slowdown, however, has been an optimum time for railroad executives to reexamine their business models, and operators have been boosting efficiency even while worrying about the bottom line.

Monday's close of 3599.84 for the Dow Jones Transportation Index was the lowest closing value since Aug. 17 of this year. The 3600 level has formed a support line since August, which has been tested four times, including yesterday.

Things were looking less than rosy for the index, which had been diverging from the Dow Jones Industrials Average. Contra the transports, the industrials had been the strongest of the major indexes. The developing question was whether the Dow would turn down or the transports would move up.

Buffett's purchase, however, stands to benefit the entire sector. Shipping rose on news of the deal, and FedEx(FDX Quote), which makes up 10.72% of the index, was up 1.4% and United Parcel Service(UPS Quote), 8.37% of the index, had a small gain of 0.3%.