XTN: Equal-Weighted Transports Exposure That's Gaining Steam

seekingalpha07-24

Gary Yeowell Transports have been sideways for the better part of two years now, suffering the similar fate as small-cap stocks, whereby momentum has been fleeting as large-cap tech stocks get all the...

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Still — there are opportunities in Transports broadly, especially if the Fed did stick the soft landing. If you’re bullish on economic activity picking up and looking for laggards that could turn into leaders, then you may want to consider the SPDR® S&P Transportation ETF (NYSEARCA:XTN). This fund seeks to provide investment results that correspond generally to the price and yield performance of the S&P Transportation Select Industry Index. This index is based on the performance of US companies that generate 50% or more of their revenue from the transportation and logistics industries.  XTN is passively managed. The fund’s portfolio is made up of companies that operate within various sub sectors of the transport industry. These include air cargo and logistics, passenger airlines, airports and related services, highways and rail tracks, water transport and ports, rail transport, cargo ground transport, and passenger ground transport.  A Look At The Holdings One thing I appreciate about the fund is that it follows an equal weight methodology, which I’ve been very public about in my belief that equal weighted strategies are due to outperform market-cap weighted ones more broadly. No position makes up more than 3.38% of the fund, and the total holdings are made up of 44 stocks.   ssga.com What do some of these companies do? FedEx (FDX) is an international delivery services company that offers various postal and business services such as air freight, ground parcel delivery, and logistics solutions. JetBlue Airways Corp (JBLU) is an American low-cost airline that operates scheduled flights throughout North America, the Caribbean, and Latin America. And SkyWest Inc (SKYW) is a regional airline holding company that operates a fleet of regional aircraft that supply passenger and air cargo services to major airlines through code-sharing agreements. The fund’s top holdings show us that the portfolio is heavily invested in different subsectors of the transportation space, such as air freight and logistics to passenger airlines, marine transportation all the way to ground cargo transportation.   Sector Composition and Weightings  XTN's portfolio is strategically allocated across six primary sub-sectors within the transportation industry. Cargo Ground Transportation represents 31.36% of the fund, and contains companies that operate within supply lines for the delivery of goods by trucks, trailers and other forms of ground vehicle. Passenger Airlines makes up 24.39% of the portfolio. This is a sub-sector composed of passenger airlines, transporting passengers for leisure or business purposes. Air Freight Logistics makes up 18.67 percent, and includes companies specializing in the air freight space. Rail Transportation at 9.43 represents companies operating railroads and rail-based transportation services. Passenger Ground Transportation at 8.74 percent includes companies offering passenger ground transportation services such as buses, taxis, and rideshare companies. And finally, Marine Transportation at 7.41 percent includes companies that transport goods and passengers by waterway, such as ocean liners, ferries, and cruise ships. This is good for investors because it allows them to benefit from the broader transportation sector and diversifies exposure away from any concentration risk that might exist in picking a single sub-sector.  Peer Comparison  So let me compare XTN with one of its closest rivals in the ETF space — the iShares Transportation Average ETF (IYT), which is cap weighted. When we look at the price ratio of XTN to IYT, we find that after a prolonged period of relative weakness, XTN looks set to outperform. A big plus.   stockcharts.com Pros and Cons  The biggest plus is the most obvious. Growth avenues for the e-commerce-driven economy pose opportunities for companies in the transportation sector broadly. As e-commerce continues to grow, the need for timely and reliable logistic and delivery services should soar, propelling many of these companies higher and higher. The downside? It still appears that commercial drivers are in short supply, a development that could dampen the strength of the cargo ground transportation sub-sector. Moreover, the sector is sensitive to fuel costs, which can be a major variable on its P&L, both on the revenue and on the expenses side as oil prices fluctuate. Furthermore, the sector is highly susceptible to geopolitical developments, regulatory changes, and global economic fluctuations. Trade wars, tariffs, and recessions can disrupt supply chains, decrease demand for transportation services, and weigh on freight company outcomes.   Conclusion   The SPDR® S&P ® Transportation ETF provides diversified exposure to the transportation industry by enabling investors to access all transportation sub-sectors in a single investment vehicle. By being equally weighted, XTN helps mitigate concentration risk. I actually like this part of the marketplace, and think it’s worth considering as a part of one’s core equity holdings.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2453914889"}