Best Industrial ETFs for Q3 2022

EVX, PPA, and ITA are the best industrial ETFs for Q3 2022

The industrial sector is composed of companies that produce supplies and equipment used in construction and manufacturing, as well as businesses providing related services. The sector is closely linked with the broader economy, and industrial stocks tend to drop dramatically during periods of economic turmoil. Still, there are a variety of industrial subsectors that may perform differently based on their specific characteristics.

Some of the best-known companies in the sector include Honeywell International Inc. (HON), Lockheed Martin Corp. (LMT), and 3M Co. (MMM). The industrial sector also includes air transportation services companies.

Investors looking to gain exposure to the industrial sector may consider exchange-traded funds (ETFs), which provide access to broader baskets of stocks while reducing the risks typically involved with investing in individual names.

Key Takeaways

  • The industrial sector underperformed the broader market over the past year.
  • The industrial exchange-traded funds (ETFs) with the best one-year trailing total returns are EVX, PPA, and ITA.
  • The top holdings of these ETFs are Waste Management Inc., Northrop Grumman Corp., and Raytheon Technologies Corp., respectively.

There are 26 industrial ETFs that trade in the United States, excluding inverse and leveraged funds as well as those with under $50 million in assets under management (AUM). The industrial sector, as represented by the benchmark S&P 500 Industrials sector index, has underperformed the broader market in the past year. The index has provided one-year trailing total returns of -7.6% compared with -0.4% for the S&P 500, as of May 17, 2022.

The best-performing industrial ETF, based on performance over the past year, is the VanEck Environmental Services ETF (EVX). Readers should note that PPA and ITA have performed especially well year to date in 2022, largely due to the war in Ukraine. Both ETFs have heavy holdings of defense stocks.

Below, we’ll look at the three best industrial ETFs as measured by one-year trailing total returns. All figures in the tables below are as of May 18, 2022.

VanEck Environmental Services ETF (EVX)

  • One-Year Trailing Total Returns: -3.3%
  • Expense Ratio: 0.55%
  • Annual Dividend Yield: 0.25%
  • Three-Month Average Daily Volume: 2,071
  • Assets Under Management: $68.3 million
  • Inception Date: Oct. 10, 2006
  • Issuing Company: VanEck

EVX seeks to track the NYSE Arca Environmental Services Index, composed of companies involved in services including waste collection, transfer and disposal, recycling, and wastewater management. About 95% of the fund’s holdings are U.S.-based, with most of the remainder based in Canada.

While industrials stocks make up the majority of the portfolio, at more than 72%, EVX also has smaller holdings in other sectors such as materials and consumer staples. EVX may be more attractive to investors using tactical, short-term strategies and less appealing to investors looking to build a long-term, balanced portfolio.

The top holdings of the fund include Waste Management Inc. (WM), a comprehensive waste and environmental services company; Republic Services Inc. (RSG), a waste disposal, recycling, and energy company; and Ecolab Inc. (ECL), a water, hygiene, and energy products and services company.

Invesco Aerospace & Defense ETF (PPA)

  • One-Year Trailing Total Returns: -5.3%
  • Expense Ratio: 0.61%
  • Annual Dividend Yield: 0.58%
  • Three-Month Average Daily Volume: 336,089
  • Assets Under Management: $1.3 billion
  • Inception Date: Oct. 26, 2005
  • Issuing Company: Invesco

PPA is a multi-cap, blended fund that targets the SPADE Defense Index. The index is composed of companies involved in the development, manufacturing, and operation of U.S. defense, homeland security, and aerospace operations.

Despite their slow growth, companies in the aerospace and defense sector have stable revenues since most of their services are anchored to long-term government contracts. Large-cap stocks make up more than 46% of the portfolio, the largest portion, followed by midcap blend and midcap growth stocks. In many respects, PPA is a similar offering to ITA below, although PPA has a substantially higher expense ratio.

The top holdings of PPA include Northrop Grumman Corp. (NOC), a multinational aerospace and defense technology company; Lockheed Martin Corp. (LMT), an aerospace, defense, and information security company; and General Dynamics Corp. (GD), a global aerospace and defense company.

iShares U.S. Aerospace & Defense ETF (ITA)

  • One-Year Trailing Total Returns: -5.4%
  • Expense Ratio: 0.42%
  • Annual Dividend Yield: 0.83%
  • Three-Month Average Daily Volume: 778,411
  • Assets Under Management: $3.7 billion
  • Inception Date: May 1, 2006
  • Issuing Company: BlackRock Financial Management

ITA seeks to track the Dow Jones U.S. Select Aerospace & Defense Index, an index composed of U.S. equities in the aerospace and defense sector. The fund targets companies that manufacture commercial and military aircraft and other defense equipment.

ITA is a multi-cap fund that focuses on growth stocks. Many of these are large companies with stable revenues tied to long-term government contracts. The fund’s relatively undiversified portfolio provides exposure to top industry players and companies that follow trends in the defense sector.

ITA’s top two holdings comprise more than 39% of the portfolio. The ETF’s top three holdings are Raytheon Technologies Corp. (RTX), an aerospace and defense conglomerate; Lockheed Martin, described above; and Boeing Co. (BA), a designer and manufacturer of airplanes, satellites, missiles, and similar products.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

Article Sources
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