This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

ETFs: The Truth About Transports

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK ( ETF Digest) -- The Dow Theory holds that sectors confirm one another as the true sign of economic growth. Primarily, if manufacturing is growing, shipping of raw materials such as coal, steel, etc. will show an increase in transports--especially railroads. Additionally, moving the manufactured goods to the consumer will show an increase in freight mostly by trucking. Tangentially, airlines should also see growth in air freight, as well as business and leisure travel.

The logic of the theory developed at the turn of the 20th Century is correct. However, over 100 years later, it may not be the reflection originally intended. To understand this, we need to look closely at the transportation index.

iShares Dow Jones Transportation Index Fund
(IYT) tracks the Dow Transportation Index.

Description: 123.jpg


First, let's consider the railroads. The country is bisected at the Mississippi River with the major railroad to the west being Union Pacific and to the east, Norfolk Southern.

Union Pacific (UNP) has had a stellar performance, whereas Norfolk Southern (NSC) has significantly underperformed the index. How could two railroads have such a radical difference? The answer is simple: Union Pacific serves the Port of Los Angeles where all of our goods are being shipped to from China and other Asian manufactures. Norfolk Southern serves the "Rust Belt" where steel is made and coal is mined. "Steam coal" for power generation has been especially hard hit by the extreme low prices in Natural Gas. "Coking coal" is used in the manufacturing of steel and without heavy industry and infrastructure construction; coking coal has been in little demand.

Next, let's look at trucking. Trucking is all about one thing, getting consumer goods to retailers. C.H. Robinson (CHRW), a third-party logistics company, provides transportation services primarily in the trucking industry. CHRW is one of the best measures of the trucking industry. It is the worst performer of the top 10 holdings of this index. The poor performance is confirmed by J.B. Hunt (JBHT) being the 2nd poorest performer. This speaks very poorly to the brick and mortar consumer retail business.

It is no accident that two of the top holdings in this index are FedEx (FDX) and United Parcel Service (UPS). FedEx and UPS have attained the top performance slots (and weighting in the index) by bypassing the retail outlets to get goods to consumers. This is clearly evident by, what started as on-line booksellers, has crushed retailers like Barnes & Nobel. The next area of explosive growth was computers and electronics. Dell's direct-to-the-consumer marketing of computers brought significantly lower prices and grew exponentially. Another factor of simple logistics is people purchasing big screen TVs on line because they don't have a vehicle adequate to haul a huge package like a 55" TV.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.85 -3.00%
FB $117.00 7.40%
GOOG $691.20 -2.10%
TSLA $247.54 -1.60%
YHOO $36.58 -1.00%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,073.69 -21.46 -1.02%
NASDAQ 4,801.7040 -61.4370 -1.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs