Skip to main content

ETF Buffers Weaknesses in Transportation

Here's an ETF that can deal with the strengths and weaknesses of the transportation industry with a broad-based, balanced approach.
  • Author:
  • Publish date:

NEW YORK (TheStreet) --Transportation remains an attractive market area as the global economy continues along the road to recovery. However, investors need to be cautious when seeking out a lucrative ways to invest in this industry. An interesting split is surfacing in the sector.

Companies in the rail and trucking industry appear promising while the airline and shipping subsectors appear certain to see some lag in coming weeks and months.

Given this separation, I would advise investors to avoid concentrated plays on specific aspects of transportation industry such as the

Guggenheim Airline ETF


and the

Guggenheim Shipping ETF

(SEA) - Get Invesco Shipping ETF Report


Instead, broad-based products like the

iShares Dow Jones Transportation Average Index Fund

(IYT) - Get iShares US Transportation ETF Report

and the

Fidelity Select Transportation Fund


, which balance transportation's strengths and weaknesses, are more apt for upward action looking towards the future.

TheStreet Recommends

In recent weeks, it has been hard to ignore the performance of the airline industry. Thanks to strong earnings reports coming from major players including


(DAL) - Get Delta Air Lines, Inc. Report



(LUV) - Get Southwest Airlines Co. Report

and the newly merged

United Continental

(UAL) - Get United Airlines Holdings, Inc. Report

, FAA has managed to power skyward locking in all-time highs. Although this performance has been notable, based on the outlooks from industry representatives, the curtain may be closing on this rally.

This week, the head of the International Air Transport Association offered a less than optimistic prediction for the airline industry. Setting his sight towards the near future, the representative reported that the peak is likely over for the airlines and expects the industry's profits will swing significantly lower in 2011.

Meanwhile, oversupply issues threaten to strangle the upside potential for the shipping industry. In a report this week from


, analysts noted that shipping rates for supertankers have faced a dramatic downturn as fleets expand faster than demand for oil. The drag is not expected to disappear any time soon. Rather, the majority of analysts from the industry foresee supertankers being unprofitable for at least two years.

While the near term prospects for the shipping and airline industry look poor, land-based transportation sectors appear to be showing some promising signs. Railroad companies such as

Kansas City Southern

(KSU) - Get Kansas City Southern Report


Union Pacific

(UNP) - Get Union Pacific Corporation Report

have released optimistic earnings numbers.

Elsewhere, in the trucking industry, the American Trucking Association recently reported an increase in truck tonnage in September. Following this report,

C.H. Robinson Worldwide

(CHRW) - Get C.H. Robinson Worldwide, Inc. Report

released an analyst beating earnings report.

Because they are designed to track all aspects of the transportation industry, funds such as IYT and FSRFX are not immune to the weaknesses in airlines and shipping. They are, however, able to offset these weak points thanks to their heavier dedication to the promising aspects of the transportation industry.

For instance, IYT's index dedicates nearly three-quarters of its index to companies in the delivery, railroad and trucking industries. Airlines and marine transportation companies each represent 8% slices.

The transportation industry will benefit as healing economies cautiously increase their exposure to the global marketplace and consumers increase demand for goods and services.

Strength, however, will not likely be uniform across all aspects of the industry. While investors can attempt to pick and choose which slices of this sector will outperform, a more beneficial option may be to grab exposure to the whole.

Written by Don Dion in Williamstown, Mass.

Readers Also Like:

>>10 Dividend Stocks With Yields Up to 10%

At the time of publication, Dion Money Management does not have positions in any of the equities mentioned.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.