You can invest in companies that move people and products by buying shares of exchange-traded funds (ETFs) that specialize in the transportation sector. The transportation sector is one of the most broadly diversified with industrial companies representing airlines, railroads, truckers, equipment and leasing stocks, and logistics companies.
The three of the usually top-performing ETFs in the transportation sector overall – Direxion Daily Transportation Bull 3X Shares ETF (TPOR), SPDR S&P Transportation ETF (XTN) and iShares Transportation Average (IYT) – have seen year-to-date stock declines, so investors will have to decide if now represents a good time to jump in, or if a wait-and-see approach may be necessary.
- Investors interested in the transportation sector may consider ETFs to trade the sector.
- Transportation stocks and ETFs fell throughout 2017 and 2018, but are recovering in 2019.
- The transport sector is highly correlated with the price of oil - when oil goes up, transportation stocks tend to fall, and vice-versa.
Transports Poised for a 2019 Recovery
In 2017 and through 2018, these companies saw some unique challenges resulting from natural disaster effects, specifically from hurricanes, which slowed sales and revenue across the sector. However, recovery has the sector poised for new potential gains into 2019 after reaching 52-week lows in December of 2018. The transportation sector is a top contributor to the growth of the gross domestic product (GDP), which is expected to continue increasing through the end of the year.
Oil prices are a key factor for transportation, as the commodity’s price generally has an influence on transportation expenses – specifically fuel prices. The rise in oil prices throughout 2018 had put pressure on transportation stocks, reaching a 52-week high of around $75 a barrel in the Fall of that year. As of April 2019, however, West Texas crude oil stands at under $65 per barrel and is expected to continue to gain throughout the rest of 2018.
ETFs offer some protection because they are invested in a variety of companies. Given the factors affecting the industry, ETFs may be a prudent investment for those seeking transportation exposure. All statistics here are current through April 18, 2019.
The benchmark index for most transportation sector investments in the U.S. is the Dow Jones Transportation Index ("Dow Transports").
1. Direxion Daily Transportation Bull 3X Shares ETF (TPOR)
Net Assets: $4.5 million
Dividend Yield: 0.82%
Expense Ratio: 1.02%
Avg. Volume: 19,276
Inception Date: May 3, 2017
The Direxion Daily Transportation Bull 3X Shares ETF is a relatively new fund launched in May 2017. This ETF seeks to capitalize on gains in the sector by enhancing returns through leverage. TPOR seeks to return three times the investment results of the Dow Jones Transportation Average Index. The Index includes 20 transportation companies from across the sector with road and rail accounting for the majority of the Index at 46%.
Leveraged ETFs like TPOR present unique risks compared to traditional ETFs. Be sure to understand how leveraged ETFs can affect your risk and return.
2. SPDR S&P Transportation ETF (XTN)
Net Assets: $160.8 million
Dividend Yield: 0.82%
Expense Ratio: 0.35%
Avg. Volume: 14,224
Inception Date: January 26, 2011
XTN tracks the S&P Transportation Select Industry Index. The stocks in this index are U.S. transportation companies selected from the broad S&P Total Market Index. The ETF attempts to keep 80% of assets in companies from the Index. Fund managers may invest the remaining 20% of assets in non-transportation companies which helps to diversify the Fund’s holdings.
3. iShares Transportation Average (IYT)
Net Assets: $593.9 million
Expense Ratio: 0.43%
Avg. Volume: 360,838
Inception Date: October 10, 2003
The Dow Jones Transportation Average Index is more than 100 years old and is vital in assessing the market. IYT tracks this index. The ETF contains the largest U.S. transportation companies and invests 90% of assets in companies that are part of the benchmark index.
The Bottom Line
The transportation sector has been performing well over the long term, but the individual share prices of these ETFs have been falling year-to-date. Continued growth in GDP and across the industrial sector is expected to support further upside potential. Oil prices will be one headwind that investors will want to watch throughout the year. Overall, the three ETFs listed here have a history of strong management and top performance. They are top funds for navigating the transportation sector and capitalizing on broad market movements higher in 2019.