Top 10 Industrial Sector ETFs

NEW YORK ( ETF Digest) -- There is currently an expanding list of 20 ETFs oriented to the industrial sector with more on the way. The following analysis features a fair representation of ETFs available. The list comprises basic manufacturing mixed with large defense sectors. We believe from these investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize individually or in a portfolio.

ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called "enhanced" indexes that attempt to achieve better performance through more active management of the index.

Where competitive issues exist and/or repetitive issues available at a fee cost saving we mention those as other choices. New issues are coming to market consistently (especially globally) and sometimes these issues will need to become more seasoned before they may be included at least in our listings.

We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we're sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.

 


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity


Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity


Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity


Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.

Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted

 

#10: PowerShares Small Cap Industrials ETF (PSCI )

 

PSCI follows the S&P Small-Cap 600 Industrials Index which consists of those industrial subsector constituents from the overall index. The fund was launched in April 2010. The expense ratio is .29%. AUM equal $35 million and average daily trading volume is under 10K shares.

 

As of early February 2012 the annual dividend yield was .64% and YTD return 9.97%. The one year return was 2.21%. 

 

Data as of First Quarter 2012

PSCI Top Ten Holdings & Weightings
  1. Clarcor Inc. (CLC): 3.39%
  2. Robbins & Myers, Inc. (RBN): 3.38%
  3. Teledyne Technologies, Inc. (TDY): 2.90%
  4. Moog, Inc. A (MOG.A): 2.67%
  5. Old Dominion Freight Lines (ODFL): 2.54%
  6. Toro Company (TTC): 2.41%
  7. EMCOR Group, Inc. (EME): 2.39%
  8. Brady Corporation A (BRC): 2.20%
  9. Actuant Corp A (ATU): 2.19%
  10. Belden, Inc. (BDC): 2.18%

#9: Rydex S&P Equal Weight Industrials ETF (RGI)

RGI follows the S&P Equal Weight Industrials Index which uniquely breaks the index into equal weightings allowing investors the opportunity to evaluate the entire sector without the heavier weightings we've seen in the bigger names where a company like GE would be dominant. The fund was launched in November 2006. The expense ratio is .50%. AUM equal $31 million while average daily trading volume is 15K shares.

The company has struggled with ownership issues when the founder passed away which accounts for its low AUM; however, Guggenheim has now taken over and with a greater marketing presence should revive a good product. As of early February 2012 the annual dividend yield was 1.88% and YTD return 8.53%. The one year return was 1.50%. 

Data as of First Quarter 2012

RGI Top Ten Holdings& Weightings
  1. Masco Corporation (MAS): 1.87%
  2. Cintas Corporation (CTAS): 1.80%
  3. Raytheon Company (RTN): 1.70%
  4. Stanley Black & Decker Inc (SWK): 1.70%
  5. Union Pacific Corp (UNP): 1.69%
  6. Waste Management Inc (WM): 1.68%
  7. Dun & Bradstreet Corporation (DNB): 1.68%
  8. General Electric Co (GE): 1.68%
  9. Lockheed Martin Corporation (LMT): 1.68%
  10. Northrop Grumman Corp (NOC): 1.68%

#8: First Trust Industrials AlphaDEX ETF (FXR)

FXR follow the StrataQuant Industrials Index which, like PRN, is another "enhanced" index applying proprietary quantitative analysis applications to the basic sector. The fund was launched in May 2007. The expense ratio is .70%. AUM equal nearly $64.4 million while average daily trading volume is 40K shares. As of early February 2012 the annual dividend yield was .58% and YTD return 10.60%. The one year return was -1.17%.

Once again just comparing the rates of return you can see the outsized performance for both FXR and PRN versus conventional index linked ETFs. The makes trading issues more significant. 

Data as of First Quarter 2012

FXR Top Ten Holdings & Weightings
  1. Lexmark International, Inc. (LXK): 2.14%
  2. TransDigm Group Inc (TDG): 1.97%
  3. W.W. Grainger, Inc. (GWW): 1.97%
  4. Gardner Denver, Inc. (GDI): 1.84%
  5. Towers Watson & Co. (TW): 1.76%
  6. Alliant Techsystems Inc (ATK): 1.74%
  7. Accenture PLC (ACN): 1.74%
  8. Kennametal Inc. (KMT): 1.71%
  9. Huntington Ingalls Industries Inc (HII): 1.70%
  10. Raytheon Company (RTN): 1.70%

  

#7: PowerShares Dynamic Industrials ETF (PRN)

PRN follows the Dynamic Industrials Sector Intellidex Index. This is another of the "enhanced" indexes which uses the same constituents as other passive indexes utilize but then applies proprietary quantitative analysis to assemble and more actively manage the index. The fund was launched in October 2006.

The expense ratio is .60%. AUM equal $35 million and average daily trading volume is 13K shares. As of early February 2012 the annual dividend yield was .54% and YTD return 9.96%. The one year return was -1.65%.

Enhanced indexes may outperform on the upside but may underperform as markets retreat.

Data as of First Quarter 2012

PRN Top Ten Holdings & Weightings
  1. Delta Air Lines Inc (DAL): 2.58%
  2. United Continental Holdings Inc (UAL): 2.55%
  3. Equifax, Inc. (EFX): 2.50%
  4. Parker Hannifin Corporation (PH): 2.49%
  5. Donaldson Company, Inc. (DCI): 2.49%
  6. W.W. Grainger, Inc. (GWW): 2.48%
  7. Towers Watson & Co. (TW): 2.45%
  8. Tyco International Ltd (TYC): 2.44%
  9. General Dynamics (GD): 2.44%
  10. Roper Industries, Inc. (ROP): 2.42%

#6: PowerShares Aerospace & Defense ETF (PPA)

PPA follows the SPADE Defense Index which also includes homeland security and the usual aerospace and defense constituents. The fund was launched in October 2005. The expense ratio is .60%. AUM equal roughly $57 million and average daily trading volume is over 146K shares As of early February 2012 the annual dividend yield was 1.09% and YTD return 7.84%. The one year return was -1.63%. 

This sector is narrower than the broader features of XLI for example.

Data as of First Quarter 2012

PPA Top Ten Holdings & Weightings
  1. Honeywell International, Inc. (HON): 6.74%
  2. The Boeing Co (BA): 6.15%
  3. United Technologies Corp (UTX): 5.89%
  4. Lockheed Martin Corporation (LMT): 5.06%
  5. General Dynamics (GD): 4.97%
  6. Raytheon Company (RTN): 4.93%
  7. Precision Castparts Corp. (PCP): 4.58%
  8. Goodrich Corporation (GR): 4.42%
  9. Northrop Grumman Corp (NOC): 4.40%
  10. Rockwell Collins, Inc. (COL): 4.02%

 

#5: iShares Dow Jones U.S. Aerospace & Defense ETF (ITA)

ITA follows the Dow Jones U.S. Select Aerospace & Defense Index which measures this sector of the U.S. equity market. The fund was launched in May 2006. The expense ratio is .48%.

AUM equal $108 million and average daily trading volume is over 21K shares. As of early February 2012 the annual dividend was 1.10% and YTD return around  7.06%.  The one year return was 4.89%. 

Data as of First Quarter 2012

ITA Top Ten Holdings & Weightings
  1. United Technologies Corp (UTX): 8.76%
  2. The Boeing Co (BA): 8.35%
  3. Precision Castparts Corp. (PCP): 6.22%
  4. Lockheed Martin Corporation (LMT): 5.90%
  5. General Dynamics (GD): 5.68%
  6. Raytheon Company (RTN): 5.38%
  7. Goodrich Corporation (GR): 4.99%
  8. Northrop Grumman Corp (NOC): 4.90%
  9. Rockwell Collins, Inc. (COL): 3.92%
  10. L-3 Communications Holdings Inc (LLL): 3.56%

#4: iShares S&P Global Industrials ETF (EXI)

EXI follows the S&P Global Industrials Index which covers the mostly developed market constituents in the U.S. and overseas. The fund was launched in September 2006. The expense ratio is .48%. AUM equal $168 million with average daily trading volume of25K shares. As of early February 2012 the annual dividend yield was 2.36% and YTD return 8.94%. The one year return was -5.44%.

An alternative choice could be IPN (SPDR S&P International Industrial Sector ETF) which follows the S&P Developed Ex-U.S. BMI Industrial Sector Index. It was launched in July 2008. The expense ratio is .50%. AUM equal only $10 million and average daily trading volume is low at 12K shares.

Data as of First Quarter 2012

EXI Top Ten Holdings & Weightings
  1. General Electric Co (GE): 7.56%
  2. Siemens AG (SIE): 3.56%
  3. United Technologies Corp (UTX): 2.99%
  4. United Parcel Service Inc (UPS) (UPS): 2.87%
  5. 3M Co (MMM): 2.39%
  6. Caterpillar Inc (CAT): 2.25%
  7. The Boeing Co (BA): 2.10%
  8. ABB, Ltd. (ABBN): 1.88%
  9. Union Pacific Corp (UNP): 1.83%
  10. Honeywell International, Inc. (HON): 1.61%

#3: iShares Dow Jones U.S. Industrial Sector ETF (IYJ)

IYJ follows the Dow Jones U.S. Industrials Index. The fund was launched in June 2000. The expense ratio is .48%. AUM equal $387 million and average daily trading volume is over 55K shares.

As of early February 2012 the annual dividend yield was 1.55% and YTD return 8.98%. The one year return was 1.66%. 

Data as of First Quarter 2012

IYJ Top Ten Holdings & Weightings
  1. General Electric Co (GE): 11.46%
  2. United Technologies Corp (UTX): 3.50%
  3. United Parcel Service Inc (UPS) (UPS): 3.27%
  4. Caterpillar Inc (CAT): 3.21%
  5. 3M Co (MMM): 3.18%
  6. Union Pacific Corp (UNP): 3.10%
  7. The Boeing Co (BA): 2.94%
  8. Honeywell International, Inc. (HON): 2.35%
  9. Emerson Electric Co. (EMR): 2.10%
  10. Accenture PLC (ACN): 2.07%

#2: Vanguard Industrials ETF (VIS)

VIS follows the MSCI US Investable Market Industrials 25/50 Index which covers a similarly wide spectrum of constituents as XLI. The fund was launched in September 2004. The expense ratio is .19%. AUM equal $475 million while average daily trading volume is low at 51K shares. The lighter volume indicates Vanguard's emphasis on buy and hold especially with financial advisors.

As of early February 2012 the annual dividend yield was 2.05% and YTD return -5.70%. The one year return was 1.79%. 

Data as of First Quarter 2012

VIS Top Ten Holdings & Weightings
  1. General Electric Co (GE): 12.09%
  2. United Technologies Corp (UTX): 4.58%
  3. 3M Co (MMM): 3.63%
  4. Caterpillar Inc (CAT): 3.56%
  5. United Parcel Service Inc (UPS) (UPS): 3.49%
  6. The Boeing Co (BA): 3.18%
  7. Union Pacific Corp (UNP): 3.00%
  8. Honeywell International, Inc. (HON): 2.46%
  9. Emerson Electric Co. (EMR): 2.32%
  10. Deere & Co (DE): 2.03%

#1: SPDR Industrials ETF (XLI)

XLI follows the Industrial Select Sector Index that contains constituents from a wide variety of U.S. manufacturers. The fund was launched in December 1998. The expense ratio is .19%. AUM (Assets under Management) equal $3.6 billion and average daily trading volume is over 14M shares. As of early February 2012 the annual dividend yield was 2.15% and YTD return 8.47%. The one year return was 1.79%. 

An alternative issue FIL (Focus Morningstar Industrials ETF) was recently launched by FocusShares and Scottrade. It is too new to rate for now but clearly the fees are low and commission free trading is available for Scottrade customers.   

Both ProShares and Direxion Shares maintain leveraged long and short ETFs for hedging or speculation needs.

Data as of First Quarter 2012

XLI Top Ten Holdings & Weightings
  1. General Electric Co (GE): 10.96%
  2. United Parcel Service Inc (UPS) (UPS): 5.63%
  3. United Technologies Corp (UTX): 5.39%
  4. Caterpillar Inc (CAT): 4.89%
  5. 3M Co (MMM): 4.60%
  6. The Boeing Co (BA): 4.46%
  7. Union Pacific Corp (UNP): 4.36%
  8. Honeywell International, Inc. (HON): 3.47%
  9. Emerson Electric Co. (EMR): 2.84%
  10. Deere & Co (DE): 2.80%

The industrial sector like others had a volatile 2011 and now is rapidly recovering as 2012 begins. It's interesting to note the more obvious performance differences with enhanced index related ETFs like PRN and FXR indicating the need for more trading from our view. This may also mean enhanced returns for those willing to trade just a little more.  

It's good to see a small cap sector like PSCI gain more investor acceptance with AUM growing substantially just over the past quarter.

There is a lot to choose from in terms of indexes linked to industrial sector ETFs. Some are passive and duplicative relatively. It's essential to remember it's really a game of battleship for sponsors seeking to be first to a sector space or just being competitive in the space. This is their business interest apart from your investment interest. You should always ignore their interests and align your choices with what serves your objectives best.

New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned. 

For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest . Follow us on Twitter and Facebook as well and join our group conversations.

 

You may address any feedback to: feedback@etfdigest.com   

 

The ETF Digest is long XLI in the featured securities.

 

(Source for data is from ETF sponsors and various ETF data providers.)
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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