ETF Talk: Putting Industrials to Work for You

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Let’s look at the housing recovery. The rebound actually began last year, about five years after the housing bubble burst. Key reasons for the resurgence are an improving labor market and low mortgage rates, which have caused an increase in home buying. One way to capitalize on what is projected to be a continued and successful recovery for the housing market is to buy an exchange-traded fund such as the Industrial Select Sector SPDR (XLI).

This non-diversified fund seeks investment results that, before expenses, correspond generally to the price and yield of companies in The Industrial Select Sector Index. That index includes companies in the industrial conglomerates, machinery, road & rail, electrical equipment, construction & engineering and building products industries.

XLI rose 10.14% in 2012, and it already is up 4.83% so far this year. If you like income, the fund yields 2.27%. The housing recovery should continue to boost XLI’s per-share gains. Increased housing prices also boost the wealth of homeowners, and a byproduct can be further spending and economic growth.

As expected with a sector ETF, XLI has 99.51% of its holdings in the industrials sector. The remaining 0.49% is invested in basic materials. The fund’s top ten holdings comprise 48.83% of its total assets. The top holding is General Electric, which constitutes a sizable 12.06% of XLI’s assets. The next four top holdings are United Technologies, 5.31%; Union Pacific, 4.76%; Caterpillar, 4.62%; and 3M, 4.48%.

As the housing recovery continues, the industrials sector and XLI should benefit. If you invest in the fund, you will have a chance to ride the momentum, too.

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