Best Industrial ETFs for Q4 2022

AIRR, EVX, and PPA are the best industrial ETFs for Q4 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 outperformed the broader market over the past year.
  • The industrial exchange-traded funds (ETFs) with the best one-year trailing total returns are AIRR, EVX, and PPA.
  • The top holdings of these ETFs are Clean Harbors Inc., Waste Connections Inc., and The Boeing 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 outperformed the broader market in the past year. The index has provided a one-year trailing total return of -5.5% compared with -8.1% for the S&P 500, as of Sept. 9, 2022.

The best-performing industrial ETF, based on performance over the past year, is the First Trust RBA American Industrial Renaissance ETF (AIRR). Readers should note that PPA has performed especially well year to date in 2022, largely due to the war in Ukraine. PPA has 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 Sept. 8, 2022, excluding the expense ratio of Invesco Aerospace & Defense ETF (PPA), which is as of Sept. 9, 2022. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.

First Trust RBA American Industrial Renaissance ETF (AIRR)

  • One-Year Trailing Total Returns: 0.6%
  • Expense Ratio: 0.70%
  • Annual Dividend Yield: 0.05%
  • Three-Month Average Daily Volume: 20,505
  • Assets Under Management: $195.2 million
  • Inception Date: Mar. 10, 2014
  • Issuing Company: First Trust

AIRR tracks the Richard Bernstein Advisors American Industrial Renaissance Index, which is comprised of small-cap and mid-cap holdings focused on the industrial and community banking sectors. The holdings of AIRR are composed of around 90% industrial services, and the rest of the fund contains companies within the financial sector. The fund selects its holdings from stocks in the Russel 2500 Index. No company within AIRR surpasses 4% of the total fund following rebalance. The fund uses a multi-cap blended strategy.

The top three holdings of AIRR include Clean Harbors Inc. (CLH), which provides environmental and industrial services; Acrosa Inc. (ACA), a provider of construction, transportation, and energy-related products; and RBC Bearings Inc. (ROLL), which manufactures precision bearings for aerospace, defense, and industrial businesses.

VanEck Environmental Services ETF (EVX)

  • One-Year Trailing Total Returns: -0.3%
  • Expense Ratio: 0.55%
  • Annual Dividend Yield: 0.25%
  • Three-Month Average Daily Volume: 1,763
  • Assets Under Management: $72.2 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 96% of the fund’s holdings are U.S.-based, with most of the remainder based in Canada. While industrials stocks make up roughly three-quarters of the portfolio, EVX also has smaller holdings in other sectors such as materials and consumer staples. Because of its narrow focus, EVX may be more attractive to investors using tactical, short-term strategies and less useful to investors seeking to build a long-term, balanced portfolio.

The top holdings of EVX include Waste Connections Inc. (WCN), a Canada-based company that provides non-hazardous waste collection services; Waste Management Inc. (WM), a waste services and environmental services company; and Republic Services Inc. (RSG), is a waste disposal, recycling, and energy company.

Invesco Aerospace & Defense ETF (PPA)

  • One-Year Trailing Total Returns: -0.5%
  • Expense Ratio: 0.58%
  • Annual Dividend Yield: 0.58%
  • Three-Month Average Daily Volume: 146,219
  • Assets Under Management: $1,4 billion
  • Inception Date: Oct. 26, 2005
  • Issuing Company: Invesco

PPA targets the SPADE Defense Index, which is composed of companies involved in homeland security, aerospace, and U.S. defense operations. Companies in the aerospace and defense sector generally have stable revenues because most of their products and services are tied to long-term government contracts. Large-cap stocks make up the largest share of the portfolio, at more than 44%, followed by mid-cap blend and mid-cap growth stocks. PPA is a multi-cap, blended fund.

The top holdings of PPA include The Boeing Corp. (BA); Northrop Grumman Corp. (NOC), and General Dynamics Corp. (GD). All three are aerospace and defense companies.

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.

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