Transportation ETFs & Allure of Infrastructure Investing

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The iShares Transportation Average ETF (NYSEArca: IYT) and the SPDR S&P Transportation ETF (NYSEArca: XTN) have traded almost flat this year, but some market observers believe transportation could play a pivotal role in driving broader benchmarks higher this year.

IYT tracks the Dow Jones Transportation Average (DJT). Transportation stocks were expected to benefit from lower oil prices and while that has been the case for airline stocks, other industry groups represented in IYT, including railroads, have lagged broader equity benchmarks. XTN is an equal-weight spin on the transportation sector.

“The iShares Transports IYT ETF, which holds 20 top transportation stocks such as UPS and FedEx, has been largely shut out of gains during the past year. It has fallen around half a percent over the past 12 months, while the S&P 500 is up nearly 16 percent over the same period,” reports CNBC.

Going forward, the allure of infrastructure investing, which investors can easily engage in via exchange traded funds, could and should rise as governments around the world finally commit the capital necessary to upgraded dated and dangerous bridges, pipelines and roads. In the near-term, however, transportation investments could remain challenged.

“From a fundamentals perspective, Michael Bapis, partner and managing director at the Bapis Group at HighTower Advisors, says the rise in e-commerce is the most important catalyst for transports names,” according to CNBC.

Airline Industry Looks Show Signs of Rebound Potential

Airlines are also a significant part of IYT’s lineup. There are encouraging fundamental factors for airlines, including low oil prices. Fuel is the largest input cost for airlines. The improving U.S. economy could encourage more business and leisure travel and airlines are generating impressive amounts of cash.

The U.S. Global Jets ETF (NYSEArca: JETS), which has also recently been struggling, is also showing signs of rebound potential. 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.

“"Transports are an attractive rotation idea, and they could be that next area to lead equities higher," Ari Wald, head of technical analysis at Oppenheimer, said in an interview with CNBC. “Transports have been more or less an underperformer since 2015 and, in recent years, have been kind of [flat] on a relative basis.”

For more information on Transportation ETFs, visit our Transportation category.

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