Transportation ETF Rides the Rails

The iShares Dow Jones U.S. Transportation Index Fund is the ultimate play for investors looking to play the lucrative railroad industry.
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NEW YORK (TheStreet) - Throughout the opening months of 2010, Warren Buffett's investment conglomerate, Berkshire Hathaway (BRK.A) - Get Report has managed to more than double the performance of the broader S&P 500.

Aiding the company's gains this year has been his foray into the railroad industry. In late 2009, the Oracle of Omaha announced the largest deal in his company's history: the purchase of Burlington Northern Santa Fe. The deal was described as a $34 billion bet on U.S. recovery.

As the U.S. and other nations continue the road to economic recovery, demand for rail transported goods have seen an uptick and rail shares have rallied. This week,

CSX

(CSX) - Get Report

reported its first quarter earnings and thanks to the recovery it managed to comfortably beat analyst expectations.

Fellow leading railroad

Union Pacific

(UNP) - Get Report

is scheduled to release its own quarterly earnings on April 22. Like CSX, the company is expected to see strong gains.

ETF investors looking to follow Buffett's market beating move should take a look at the

iShares Dow Jones U.S. Transportation Index Fund

(IYT) - Get Report

. This ETF is the ultimate play for investors looking to play the lucrative railroad industry.

Like Buffett's

Berkshire Hathaway

, IYT has managed to surpass the S&P throughout the first quarter of 2010.

Before Buffett's

Burlington Northern

purchase, BNI dominated this instrument, representing nearly 13% of the fund's total index. However, after Berkshire absorbed the company it was removed. In its absence, other firms have filled the gap. Today,

FedEx

(FDX) - Get Report

commands the top spot, making up 11% of the fund; UNP follows with a 9% slice.

Aside from UNP, other railroad companies found among the fund's top ten holdings include

Norfolk Southern

(NSC) - Get Report

, CSX, and

Kansas City Southern

(KSU) - Get Report

. The rail industry as a whole represents 28% of the index, making it the largest single sector in the fund.

The rest of IYT's index includes companies hailing from industries that should continue to benefit in light of the economic recovery. These firms are in industries such as trucking, shipping, delivery services and airlines.

Along with CSX, a number of IYT's non-rail holdings have also reported their earnings for the first quarter of 2010 and like the railroad, the numbers have been impressive.

Trucking company

JB Hunt

(JBHT) - Get Report

and delivery service giant

United Parcel Services

(UPS) - Get Report

reported their first-quarter earnings after Wednesday's close and in both cases, they didn't disappoint. JBHT saw its first quarter profit jump 22% while UPS saw its own profit jump 33%.

UPS's numbers were particularly impressive considering the firm had forecast previously that the first quarter of 2010 would be their most difficult of the year.

It appears as though Warren Buffett's decision to ride the rails could not have come at a better time. Still, the chance to bank on transports does not seem to be lost. On the contrary, with the U.S. and nations around the globe still working toward recovery, rail, trucking, airlines, delivery services and shipping should remain necessary components for growth. With that in mind, IYT may still have some fuel left in its tank.

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.