Transportation ETFs Could get Back on Track

Markets ETF Trends

The iShares Transportation Average ETF (NYSEArca: IYT) and the SPDR S&P Transportation ETF (NYSEArca: XTN) are delivering solid performances on a year-to-date basis and the two transportation exchange traded funds have recently been building on those gains.

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According to the U.S. Bureau of Transportation, the volume of freight transported by road, rail, air, barge and pipelines has been flattening or lower since the end of 2014, Reuters reports. Meanwhile, stubbornly low energy prices may help the transportation industry cut down on costs.

Related: Not-So-Great Expectations for Industrial ETFs

Headwinds remain for the industrial sector. The sell-off in the oil markets has weighed on capital spending from the energy sector as producers hold off on new projects, pressuring U.S. industrial companies and sector-related exchange traded funds.

Meanwhile, a stubbornly low energy prices may help the transportation industry cut down on costs.

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“Recently declining fuel prices only have a short-term impact on transportation firms,” Morningstar analyst Robert Goldsborough said in a note. “Most firms use fuel surcharge programs to pass through changes in fuel prices. In the short run, firms enjoy a margin benefit for several quarters from rapid fuel price declines because of the time lag in adjusting surcharges to shippers.”

Some technical analysts see bullish signs in the widely followed Dow Jones Transportation Average, which IYT follows.

“The price movement in Dow Transports relative to the S&P 500 has officially broken out. This should help this sector outperform. This could also foreshadow a move up to 8500 and higher on the average,” according to See It Market.

The U.S. Global Jets ETF (NYSEArca: JETS), the lone dedicated airline ETF, is another transportation to consider.

SEE MORE: Airline ETF Flying High

JETS follows the U.S. Global Jets Index, which uses fundamental screens to select airline companies, with an emphasis on domestic carriers, along with global aircraft manufacturers and airport companies.

Along with lower oil prices, airline stocks look attractive in their own right. For instance, income-oriented investors may notice that airline stocks have seen improved dividend-yield growth. Additionally, the sector shows relatively cheap valuations. Airline stocks have a 7 times price-to-earnings ratio, whereas the broader transportation stocks have a 15 times ratio and the S&P 500 index shows 17 times P/E.

Airlines account for 19.7% of IYT’s weight while freight and logistics and railroad operators combine for over 54% of the ETF’s weight.

For more information on airline ETFs, visit our Airline category.

This article was provided by our partners at ETFTrends.