The industrial sector is comprised 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 in 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 ETFs with the best 1-year trailing total return are HAIL, PRN, and FIW.
  • The top holdings of these ETFs are Nio Inc., Plug Power Inc., and Xylem Inc., respectively.

There are 38 industrial ETFs that trade in the U.S., excluding leveraged or inverse funds as well as those with under $50 million in assets under management (AUM). The industrial sector as represented by the benchmark Industrial Select Sector SPDR ETF (XLI) has underperformed the broader market in the past year. XLI has provided 1-year trailing total returns of 9.5% compared with 19.8% for the Russell 1000, as of December 14, 2020. The best performing industrial ETF, based on performance over the past year, is the SPDR S&P Smart Mobility ETF (HAIL). Below, we’ll look at the top 3 industrial ETFs as measured by 1-year trailing total returns. All figures in the tables below are as of December 15.

SPDR S&P Smart Mobility ETF (HAIL)

  • 1-Year Trailing Total Returns: 75.2%
  • Expense Ratio: 0.45%
  • Annual Dividend Yield: 0.96%
  • 3-Month Average Daily Volume: 45,862
  • Assets Under Management: $70.9 million
  • Inception Date: December 26, 2017
  • Issuing Company: State Street SPDR

HAIL is a multi-cap fund that targets the S&P Kensho Smart Transportation Index. The index comprises companies that are involved in the development of autonomous and electric vehicle technology as well as commercial drones and other advanced transportation systems. HAIL holds a portfolio of about 57 stocks, with just under 40% of invested assets concentrated in the 10 largest positions. The fund's top holdings include Sponsored ADR Class A shares of Nio Inc. (NIO), the China-based maker of electric vehicles; Plug Power Inc. (PLUG), the maker of hydrogen fuel cell systems; and Tesla Inc. (TSLA), the provider of electric vehicles and clean energy products.

Invesco DWA Industrials Momentum ETF (PRN)

  • 1-Year Trailing Total Returns: 27.6%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 0.16%
  • 3-Month Average Daily Volume: 21,683
  • Assets Under Management: $131.8 million
  • Inception Date: October 12, 2006
  • Issuing Company: Invesco

PRN is a multi-cap growth fund that targets the Dynamic Industrials Sector Intellidex Index. The index utilizes a quant-based methodology to select a pool of industrial stocks. Because of this methodology, PRN has a higher expense ratio than some alternative funds focused on this space. The fund's top three holdings include Plug Power; TransDigm Group Inc. (TDG), the aerospace manufacturing company; and Class A shares of Bloom Energy Corp. (BE), the maker of solid oxide fuel cells.

First Trust ISE Water Index Fund (FIW)

  • 1-Year Trailing Total Returns: 20.3%
  • Expense Ratio: 0.55%
  • Annual Dividend Yield: 0.48%
  • 3-Month Average Daily Volume: 32,142
  • Assets Under Management: $645.7 million
  • Inception Date: May 11, 2007
  • Issuing Company: First Trust

FIW is a multi-cap blended fund that tracks the ISE Water Index, which is primarily focused on companies that derive a substantial portion of their revenue from the potable and wastewater industries. FIW holds a portfolio of about 38 stocks, with roughly 38.7% of invested assets concentrated in the top 10 holdings. The fund's top three holdings include Xylem Inc. (XYL), a maker of water and wastewater pumps, valves, heat exchangers, and treatment and testing equipment; IDEXX Laboratories, Inc. (IDXX), the maker of various products for the veterinary, livestock, water testing, and dairy markets; and Agilent Technologies, Inc. (A), the maker of analytical instruments and related products.

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