Buyers and auction staff at a Ritchie Bros.' site in Bolton, Ont.Kevin Van Paassen
The U.S. industrial sector has just entered into a period of seasonal strength. Investors can participate in the seasonal trade with exchange traded funds.
The period of seasonal strength for the industrial sector is from Oct. 9th to May 31st. Average return per period during the past 20 periods was 15.0 per cent.
The industrial sector includes a wide variety of subsectors, including industrial conglomerates, aerospace & defense, machinery, air freight & airlines, road & rail, electrical equipment, construction and engineering and building products. Investors can choose between 24 ETFs that track the sector or its subsectors.
The most actively traded ETF in the sector is the Industrial Select Sector SPDR Fund . The fund holds the 60 industrial stocks that are part of the S&P 500 Index. Largest holdings are General Electric, United Technologies, United Parcel Services, MMM, Caterpillar, Boeing and Union Pacific. Management expense ratio is 0.20 per cent.
The second most actively traded ETF in the sector is the Vanguard Industrial Index Fund . Largest holdings are similar to the Select Sector SPDR Fund. The main difference is that the Vanguard Fund holds 367 securities listed on U.S. exchanges. Management expense ratio is 0.25 per cent.
The most actively traded subsector ETF is the iShares Dow Jones Transportation Average Index Fund . The fund holds the 20 stocks that make up the Dow Jones Transportation Average. Largest holdings are Union Pacific, CH Robinson Worldwide, Fedex, United Parcel Services and Norfolk Southern. Management expense ratio is 0.48 per cent.
iShares also offers the Dow Jones US Aerospace & Defense Fund . The fund holds 33 securities. Largest holdings are United Technologies, Boeing, Goodrich, Precision Castparts and Lockheed Martin. Management expense ratio is 0.48 per cent.
Market Vectors offers the Environmental Services ETF . The sector tracks business activities that benefit from the global increase in consumer waste disposal as well as removal and storage of industrial by-products. The fund holds 20 securities. Largest holdings are Republic Services, Stericycle, Waste Management, Veolia Environment ADR and Nalco Holdings. Management expense ratio is 0.55 per cent.
On the charts, the S&P Industrial Index has a negative technical profile with improving prospects. Intermediate trend is down. The Index trades below its 200-day moving average, but moved above its 50-day moving average at the start of this week. Short-term momentum indicators are recovering from oversold levels. In addition, strength relative to the S&P 500 index turned positive at the end of September. Preferred strategy is to accumulate industrial sector ETFs at current or lower prices for a seasonal trade lasting until at least the first week in January.
Don Vialoux is author of a free daily report on equity markets, sectors, commodities and Exchange Traded Funds. Reports are available at www.timingthemarket.ca . Mr. Vialoux also is research analyst for JovInvestment Management Inc.
Don Vialoux