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This Transportation ETF Could Benefit From Air Freight, Logistics Exposure This Year

ETF Professor

Transportation stocks and exchange traded funds did not deliver for investors in 2018. Last year, the Dow Jones Transportation Average Index slumped 12.9 percent.

Other baskets of transportation stocks performed even more poorly in 2018.

What Happened

The SPDR S&P Transportation ETF (NYSE: XTN), an equal-weight alternative to the cap-weighted Dow Jones Transportation Average Index, slid 17.3 percent last year, far outpacing the declines suffered by the transportation benchmark.

The $146.38 million XTN follows the S&P Transportation Select Industry Index. That benchmark looks to “provide exposure to the transportation segment of the S&P TMI, comprises the following sub-industries: Air Freight & Logistics, Airlines, Airport Services, Highways & Rail Tracks, Marine, Marine Ports & Services, Railroads, and Trucking,” according to State Street.

Why It's Important

XTN provides exposure to six transportation industry groups, but the ETF is dominated by trucking firms, airlines and air freight and logistics providers. Those industries combine for over 80 percent of the ETF's weight. Some analysts see XTN's airline exposure as a potential catalyst for the fund this year.

“CFRA has a positive fundamental outlook for the airline sub-industry,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Monday. “While unit revenues improved in 2018 and fuel prices retreated in the last quarter of the year, CFRA Equity Analyst Jim Corridore thinks investors focused on worries about slowing economic growth and rising interest rates punished the stocks of most U.S. airlines in 2018.”

What's Next

XTN's air freight and logistics exposure could also benefit the fund in 2019.

“CFRA also has a positive fundamental outlook for the air freight and logistics sub-industry,” said Rosenbluth. “Corridore thinks fundamentals in domestic shipping are likely to strengthen over the next year and the valuations of many logistics companies are likely to expand on improved investor sentiment, should signs emerge that the U.S. and global economies are improving.”

XTN has Overweight ratings on XTN and the iShares Transportation Average ETF (CBOE: IYT), which tracks the aforementioned Dow Jones Transportation Average Index.

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