Understanding Transportation ETFs: A Key Indicator of Economic Growth

When economies are on the upswing, transportation ETFs are almost invariable a good investment. This is because the transportation sector is often an overall indicator of economic health. If more things are being moved between companies, more things are going to be produced. The transportation sector includes airlines, railways, package carriers, oil pipelines, and gas pipelines. Transportation accounts for 3% of the United States’ GDP, or  $400 billion dollars. As customers buy more, they transport more things including themselves. A battered as the transportation sector has been in rough economic times, transportation is still considered one of the most important industries there is. Every day there are 43 million tons of goods hauled around the United States. These goods have a price tag of around $29 billion dollars. The transportation industry is generally under serviced by ETFs.

General Transportation ETF

The performance of the iShares Dow Jones Transportation Average  is a good indicator for the performance of the entire industry, and he economy in general. Dow theorists  use it to predict bull and bear trends. This fund tracks the Dow Jones Transportation Index. The top holdings of this ETF are Fedex Corporation, Union Pacific, and United Parcel Service. The fund only has 17 other holdings. It has an expense ration of 0.45% and an average yield of about 1%. The transportation sector is price-weighed, like other Dow Jones Averages.

Weightings are determined by share price. They are not determined by market capitalization. This means that the stock with the highest price is weighted most heavily on the index. This means that this ETF  tends to be very concentrates. Its three top holdings make up about a third of the entire fund. Unfortunately, because this index is so domestic, it does not reflect the reality of the global nature of the transportation industry. Therefore, they can not profit from some of the modern trends in transportation. These trends include the worldwide expansion of infrastructure, the direction of bulk goods versus finished goods, and the boom in global trade.

Shipping ETF

The  Claymore/Delta Global Shipping ETF tracks the Delta Global Shipping Index. It holds $29 million dollars in assets. This fund better capitalizes on global shipping and building expansion. Its top country weightings are the United States, Bermuda, Japan, and Greece.

Airline ETF

The only airline ETF available is the Claymore/NYSE Arca Airline ETF. Growth in this ETF has generally been poor, as the airline industry in general struggles.

The Railroad Industry

Growth in the railroad industry is looking strong, as fuel prices remain high. While there is no dedicated  railroad ETF, the iShares Dow Jones Transportation Average is heavily invested in major rail freight carriers.

Changes

There are many changes taking place in the transportation industry. Intermodal shipping is shipping that combines highways and rails. This kind of shipping has become  popular because it reduces fuel costs. There have  also been big changes in freight transportation, increasing their general popularity.