3 Top Transportation ETFs

Markets Motley Fool

Transportation companies are vital to the functioning of the economy, ensuring that producers can get their goods to consumers in an orderly and efficient manner. Investing in transportation stocks involves a wide range of industries, including air, rail, road, and sea-based modes of transport, and those industries move in and out of favor depending on external factors. For investors who want diversified exposure to the transportation sector, transportation ETFs can be helpful in building up a well-rounded portfolio. The following three ETFs focus on transportation stocks and offer different way to profit from their growth.

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Transportation ETF

Assets Under Management

Expense Ratio

5-Year Average Annual Return

iShares Transportation Average (NYSEMKT: IYT)

$933 million

0.44%

14.2%

SPDR S&P Transportation (NYSEMKT: XTN)

$181 million

0.35%

18.3%

Guggenheim Shipping (NYSEMKT: SEA)

$109 million

0.65%

(1.3%)

Comparing the two big ETFs

The two largest transportation ETFs take a similar approach in getting exposure to the sector. Broad-based portfolios offer stocks in many different sub-industries, and the biggest difference between the two funds is in the way that they allocate fund assets across those different focus areas.

The iShares Transportation Average ETF has a big lead in assets under management despite a slightly more expensive approach. The fund's holdings show a balanced approach toward investing in the sector. Air freight and logistics companies lead the way with a nearly 30% allocation, followed by airlines and railroads, each of which get just less than a quarter of the fund's assets. Trucking stocks make up a sixth of the fund, and marine transportation pick up the remainder.

The SPDR S&P Transportation ETF uses a slightly different approach that has led to larger gains in recent years. The fund follows a modified equal-weighted approach that decreases the chance of major concentrations in particular stocks, giving the ETF a more equal balance between large, mid-sized, and smaller stocks. It also allows for more targeted positions than alternative investments in the industry. Currently, trucking stocks lead the way with a nearly 35% allocation of fund assets, followed by airlines at 25%. Air freight and logistics make up about 20% of the fund, while railroads get just 13%. Marine transportation stocks and airport services companies round out the ETF's portfolio.

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Taking to the seas

If you like the idea of focusing on ocean shipping, then the Guggenheim Shipping ETF could be exactly what you're looking for. The ETF has the objective of matching the Dow Jones Global Shipping Index, hoping to capitalize on growth in trading and commerce globally.

The fund is cosmopolitan in its holdings, with about 40% exposure to U.S. stocks, 20% to Denmark, and 15% to Japan. The remainder is split between countries in Europe and the Asia-Pacific region. The ETF splits right down the middle between energy-focused tanker shipping companies and industrial dry-bulk and container shipping.

Shipping stocks have done poorly in recent years due to slumping commodity prices and weak global economic conditions, so returns for the ETF haven't lived up to expectations. Some see a recovery for shipping stocks coming, however, and that could bolster returns in the future.

Which transportation ETF is best for you?

The key question for transportation investors is which subsectors you believe will do the best. If you like the prospects for trucking stocks, then the SPDR fund currently has the more attractive portfolio mix for you. If you prefer the prospects for logistics and delivery stocks, then the iShares offering matches up better with your needs. And if you're willing to bet big on shipping, then the Guggenheim ETF will give you the concentrated exposure you want to maximize your returns.

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