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Year-to-date, most stock market sectors are down; some worse than others. Only the Energy, Utilities and Consumer Cyclical sectors have exhibited positive performance. However, just because other sectors are down doesn’t mean there aren’t buying opportunities out there. In fact, now could be an opportune time to invest in transportation ETFs.
Why transportation ETFs? Despite being down about 12% year-to-date, the transportation sector is actually in an appealing place for long-term investors. Strong headwinds have driven down the stock price of top-shelf companies. Plus, the Infrastructure Investment and Jobs Act has positive long-term prospects for the transportation sector specifically.
Let’s take a closer look at why the transportation sector is an under-the-radar play right now, and why transportation ETFs are a smart investment for the long term.
Transportation is a Messy Sector in 2022
Before we dive into the specifics of transportation ETFs, it’s important to understand that this sector is a diverse one. “Transportation” actually entails a broad range of business types and economic areas of focus. This ranges from commercial airlines to over-the-road trucking companies, third-party logistics providers to railroads and intermodals. Whether it involves people or goods, the transportation industry encompasses haulage of any kind.
With the diversity of this sector in mind, let’s take a quick look at how different segments of the transportation sector have fared in 2022:
- Commercial airlines are flying high, led by major providers like Delta Air Lines (NYSE: DAL), Southwest Airlines (NYSE: LUV) and United Airlines (NYSE: UAL). That said, small regional airlines like Alaska Air Group (NYSE: ALK) have struggled.
- Railroads are down across the board, Companies like Union Pacific (NYSE: UNP), CSX Corporation (NASDAQ: CSX) and Norfolk Southern Corporation (NYSE: NSC) are all down double digits (and falling).
- The freight and logistics segment is also suffering tremendously. Old Dominion Freight Line (NYSE: ODFL), United Parcel Service (NYSE: UPS) and J.B. Hunt Transport Services (NYSE: JBHT) are all at or near 52-week lows.
- Transportation logistics providers are suffering mightily on supply chain woes this year. Companies like XPO Logistics (NYSE: XPO), GXO Logistics (NYSE: GXO) and Expeditors International of Washington (NASDAQ: EXPD) are all down big.
Transportation also includes private aviation, autonomous vehicles, ground transport and even the technology companies powering transportation innovation. Individually, these different segments may not seem very appealing for investors in their current state. Instead, investors may find confidence in the diversified approach an ETF offers to the transportation sector as a whole.
The Benefits of Investing in Transportation ETFs
The biggest benefit to investing in a transportation ETF is that you’re getting broad exposure to a well-diversified sector. Instead of taking a risk on commercial airlines or logistics providers, ETFs offer exposure to the entire sector, albeit in different proportions depending on the fund.
The diversity offered by an ETF is of particular importance in this diversified sector. While over-the-road freight might suffer, railroads and intermodals might flourish. While commercial airlines soar high, last-mile delivery carriers might suffer. There’s contrasting performance across the sector, which makes broad capitalization important.
Let’s not forget about the passive investment benefits of an ETF, either. On top of diversified holdings, ETFs are a low-cost way to set and forget your transportation holdings into a single fund. This, in contrast to investing in multiple companies or trying to replicate a broad representation of the transportation sector.
5 Transportation ETFs to Consider
Which transportation ETF is ideal for you? It depends on which segment of the sector you’re more bullish on. There are numerous transportation ETFs out there, each focused on a different representation of the broader sector. Some of the most popular include:
- SPDR S&P Transportation ETF (XTN)
- SPDR S&P Kensho Smart Mobility ETF (HAIL)
- iShares US Transportation ETF (IYT)
- Direxion Daily Transportation Bull 3X Shares (TPOR)
- SmartETFs Smart Transportation & Technology ETF (MOTO)
Some of the biggest holdings of these ETFs include many of the companies already mentioned above. Investors will also gain exposure to big players in the sector including Uber (NYSE: UBER), Forward Air Corporation (NASDAQ: FWRD), Hertz Global Holdings (NASDAQ: HTZ) and others.
Again, the allocation of holdings will vary heavily across each of the various transportation ETFs. XTN, for example, is diversified and well-allocated across commercial airlines, ground transport providers, freight companies and railroads. Meanwhile, MOTO includes tech companies developing systems for smart transportation. A specialty ETF like HAIL seeks to capitalize on ridesharing and the tech powering it—including the likes of chartered jets.
Your choice of ETF should suit your thesis about the transportation sector. From ridesharing and autonomous vehicles to over-the-road freight and intermodal transport, there’s a transportation ETF out there. Therefore, make sure you investigate the holdings and allocations of each to determine the best one for your portfolio.
Why are Transportation ETFs a Smart Investment?
As investors look for diamonds in the rough amidst a stock market that’s largely trending downward, the transportation sector offers appealing prospects. In fact, the sector is diversified, and transportation ETFs offer a great hedge against volatility from any one segment. With a positive long-term outlook for this sector, now’s the time to make smart investments in the future.
Curious about how each sector has performed relative to every other in 2022? Discover one of the best investment newsletters and learn more about how you can capitalize on under-appreciated sectors as the stock market seeks a bottom.
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