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 outperformed the broader market over the past year.
  • The industrial ETFs with the best 1-year trailing total return are AIRR, FIW, and HAIL.
  • The top holdings of these ETFs are Encore Wire Corp., Danaher Corp., and Aspen Aerogels Inc., respectively.

There are 26 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 S&P 500 Industrials Sector Index has outperformed the broader market in the past year. The index has provided 1-year trailing total returns of 36.4% compared with 31.2% for the S&P 500, as of Aug. 31, 2021. The best performing industrial ETF, based on performance over the past year, is the First Trust RBA American Industrial Renaissance ETF (AIRR). Below, we’ll look at the best 3 industrial ETFs as measured by 1-year trailing total returns. All figures in the tables below are as of Sept. 1, 2021.

First Trust RBA American Industrial Renaissance ETF (AIRR)

  • 1-Year Trailing Total Returns: 55.1%
  • Expense Ratio: 0.70%
  • Annual Dividend Yield: 0.09%
  • 3-Month Average Daily Volume: 48,874
  • Assets Under Management: $234.2 million
  • Inception Date: March 10, 2014
  • Issuing Company: First Trust

AIRR is a multi-cap fund that utilizes a blended mix of value and growth stocks in its portfolio. The fund targets the Richard Bernstein Advisors American Industrial Renaissance Index, an index of small- and mid-cap companies representing the industrial and community banking sectors. For this reason, AIRR does not provide pure play exposure to industrial stocks, and includes bank stocks as a small share of its portfolio. The top holdings include Encore Wire Corp. (WIRE), a maker of copper and aluminum wire products; RBC Bearings Inc. (ROLL), a maker of ball and roller bearings; and MYR Group Inc. (MYRG), an electrical construction services company.

First Trust Water ETF (FIW)

  • 1-Year Trailing Total Returns: 49.8%
  • Expense Ratio: 0.54%
  • Annual Dividend Yield: 0.42%
  • 3-Month Average Daily Volume: 70,844
  • Assets Under Management: $1.3 billion
  • Inception Date: May 8, 2007
  • Issuing Company: First Trust

FIW is a multi-cap ETF that invests in a blend of value and growth stocks. It tracks the ISE Clean Edge Water Index. The index is comprised of exchange-listed companies deriving a substantial portion of their revenue from the potable and wastewater industry. They are selected according to market cap, liquidity, and other requirements. The fund's top three holdings include Danaher Corp. (DHR), a designer and provider of professional, medical, industrial, and commercial products; Agilent Technologies Inc. (A), a maker of analytical instruments; and Pentair plc (PNR), a water treatment company incorporated in Ireland.

SPDR S&P Kensho Smart Mobility ETF (HAIL)

  • 1-Year Trailing Total Returns: 48.4%
  • Expense Ratio: 0.45%
  • Annual Dividend Yield: 0.81%
  • 3-Month Average Daily Volume: 34,406
  • Assets Under Management: $191.1 million
  • Inception Date: Dec. 26, 2017
  • Issuing Company: State Street

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 stocks representing both developed and emerging markets. Automobile manufacturers and auto parts and equipment companies make up the largest share of the portfolio, accounting for more than 36% of invested assets. The fund's top holdings include Aspen Aerogels Inc. (ASPN), a maker of aerogel insulation used primarily in the energy sector; Veoneer Inc. (VNE), an American-Swedish automotive technology company; and Tesla Inc. (TSLA), an electric vehicle manufacturer and clean energy company.

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