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10 Ways to Buy Industrial Stocks

ETFs for building long-term wealth.

Industrial stocks have been the toast of Wall Street since President Donald Trump’s election. People have bought up industrials broadly on hopes of big infrastructure spending and projects, like the border wall. But industrial stocks include more than just construction, and they have just as much to offer. Defense, transportation and even water-related companies all have massive upside in the years ahead. Exchange-traded funds provide several ways to play the space, from broad-based exposure to tactical plays on the sector’s most high-potential industries.

Industrial Select Sector SPDR Fund (ticker: XLI)

The XLI — like many other Select Sector funds — is the most popular way to invest in its target sector. Here, XLI’s $11 billion in assets dwarfs the next biggest fund, Vanguard Industrials ETF (VIS), by more than $8 billion. The ETF provides broad exposure to American firms across several industries, though it leans heaviest toward aerospace and defense companies (22 percent) like Boeing Co. (BA) and industrial conglomerates (20 percent) such as General Electric Co. (GE), which itself makes up a full 9 percent of the fund. XLI also holds machinery, road and rail, airlines and building product companies, among other industries.

Expenses: 0.14 percent, or $14 per $10,000 invested annually.

SPDR S&P International Industrial Sector ETF (IPN)

The IPN essentially is the international version of the XLI — and if you’re looking for geographical diversification, it’s a better way to go than so-named “global” funds that tend to include heavy American exposure. That said, IPN’s country holdings aren’t exactly level — Japan makes up a whopping 34 percent of the ETF’s assets, and the U.K. and France are weighted at about 10 percent each. Machinery companies like Japan’s Fanuc Corp. are the largest weight at nearly 18 percent, while conglomerates such as Germany’s Siemens make up 11 percent. Road and rail, and trading companies/distributors, hover around 10 percent weights.

Expenses: 0.4 percent

Global X China Industrials ETF (CHII)

Chinese industrial data kicked off 2017 with a bang, but those holding IPN wouldn’t know that — the country is represented at a mere 0.4 percent of that ETF’s assets. Investors have a direct option in the Global X China Industrials ETF, which holds about 40 of the Middle Kingdom’s industrial stocks. The fund’s breakdown is much more rudimentary than S&P’s — machinery and equipment, building and construction, transportation, and automobiles and components are held at a 35/34/27/4 percent split. Investors should be aware, though, that CHII does hold some state-owned stocks — including China Railway Construction Corp. and China State Construction International — which come with their own advantages and complications.

Expenses: 0.65 percent

First Trust RBA American Industrial Renaissance ETF (AIRR)

If you want a straightforward allocation to smaller industrials, a fund like the PowerShares S&P SmallCap Industrials Portfolio (PSCI) will fit the bill. But FIDU has an interesting twist: It invests roughly 90 percent of its funds in Russell 2500 (small- and mid-capitalization) manufacturing and other industrial stocks. However, FIDU can invest up to 10 percent in banking stocks in states “considered to be traditional manufacturing hubs.” Thus, you get top holdings like truck and trailer product specialist Wabash National Corp. (WNC) and generator firm Generac Holdings (GNRC), but also small weights for the likes of Indiana financial Old National Bancorp (ONB).

Expenses: 0.7 percent

PowerShares Aerospace & Defense Portfolio (PPA)

The PPA, among other things, is a solid play on President Donald Trump’s policies, specifically “Making Our Military Strong Again.” While the fund is focused on aerospace and defense, most of the aerospace companies have military ties, such as Boeing, which produces craft such as the B-52, CH-47 Chinook, AH-64 Apache and the unmanned, liquid hydrogen-fueled Phantom Eye. Naturally, PPA also includes the usual suspects of defense, such as General Dynamics Corp. (GD), Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC). But it also holds companies like cybersecurity firm FireEye (FEYE) and materials stock Ball Corp. (BLL), which also produces spacecraft and related products.

Expenses: 0.64 percent

iShares Transportation Average ETF (IYT)

The iShares’ IYT, as the name would suggest, tracks the venerable Dow Jones transportation average. The broader transportation industry is broken down into five sub-industries for IYT’s purposes: air freight and logistics (28 percent), railroads (23 percent), airlines (23 percent), trucking (19 percent) and marine (7 percent). That said, IYT is far from diverse — those five sub-industries cover all of 20 stocks in what is a very top-heavy fund. FedEx Corp. (FDX) is the top dog at more than 12 percent of IYT’s weight, and the top five holdings make up 40 percent of the ETF’s assets.

Expenses: 0.44 percent

Guggenheim S&P Global Water Index ETF (CGW)

A growing global population is helping to spur rapidly climbing demand; an IIASA Water Futures and Solutions study says global water demand could double by 2050. This dynamic means big things for companies that supply water, produce water infrastructure and create technology to conserve or purify water. That means holdings such as Switzerland’s Geberit, which produces plumbing and sanitary supplies, and U.S. water utility American Water Works Co. (AWK). Guggenheim’s CGW is a global fund, weighting U.K. stocks at 15 percent and Swiss stocks at 9 percent. But the U.S. looms largest, at 45 percent of CGW’s assets.

Expenses: 0.64 percent

Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ)

While the terms “robotics,” “artificial intelligence” and “BOTZ” conjure up images of technology companies, this ETF plays at the intersection of technology and industrials, where things like industrial automation and autonomous vehicles come to the fore. BOTZ is a thin 28-stock portfolio of industrials that include machinery (30 percent), electronic equipment and instruments (11 percent) and health care equipment (10 percent), among other segments. Top holdings are on the cutting edge, such as Mitsubishi Electric Corp. (8.5 percent) and its manufacturing robots, or ABB Corp (ABB, 7.5 percent) and its industrial automation and power grid technology.

Expenses: 0.68 percent

PureFunds Drone Economy Strategy ETF (IFLY)

The IFLY is an admittedly fast and loose translation of the idea of an “industrial ETF,” incorporating several technology companies in its aim to provide investors with a way to play the up-and-coming drone industry. It’s worryingly top-heavy in small caps such as AeroVironment (AVAV, 10 percent) and France’s Parrot (9.6 percent). Moreover, it holds tech stocks such as GoPro (GPRO), which has really only scratched the drone surface, and still is primarily an action camera company. However, while volatile, IFLY’s 44-holding portfolio should broadly benefit from a large 57 percent exposure to defense.

Expenses: 0.75 percent

Guggenheim Shipping ETF (SEA)

The shipping industry has been a mess for years thanks to plunging rates amid slumping global demand for commodity imports. Moreover, the industry suffers from extreme volatility thanks to low-priced stocks that move on the smallest headlines. Still, Trump’s infrastructure plans and other hopes for expanded commodity transport could lift the fate of the battered SEA ETF and its 25 components, such as Denmark’s A.P. Moller-Maersk (21 percent) and Japan’s Nippon Yusen (8 percent). The SEA ETF also has a wild card: a roughly 6 percent yield that can mitigate a little risk for those willing to wait for a larger recovery.

Expenses: 0.65 percent

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10 Ways to Buy Industrial Stocks originally appeared on usnews.com

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