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Market Overview

Five Industrial ETFs Your Broker Forgot To Mention


There is more to the world of industrials stocks than just Dow components Caterpillar (NYSE: CAT) and General Electric (NYSE: GE), though those are fine stocks in their own right. And there is more to world of industrials ETFs than just a Dow tracking ETF or the Industrial Select Sector SPDR (NYSE: XLI), which is very Dow-centric in its composition.

These days, the industrials sector is way more volatile and far more sexy than your grandfather's industrials. ETF opportunities are abundant in this market segment, you just have to know where to look to find some of the hidden gems.

Here are five your broker probably forgot to tell you about.

1) PowerShares Dynamic Industrials Portfolio (NYSE: PRN): Caterpillar is PRN's largest holding, though that is the only Dow stock in the ETF's fray, meaning its performance can and will diverge from the Dow's in both directions. PRN's exposure to railroad stocks is noteworthy, but the ETF recently rebalanced and now features exposure of more than 7% to airlines and some exposure to car rental companies, neither of which is a compelling place to be in this environment. Nonetheless, PRN would be a buy above $32.

2) First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE: FXR): FXR definitely flies under the radar as far as industrials ETFs go, but it does $69.5 million in assets under management. This ETF, which is about four years old and home to 103 stocks, uses a near equal-weight approach as no holding receives an allocation of more than 1.8%.

Like PRN, FXR features a large allocation to aerospace, which could prove problematic at a time when Congress is looking to pinch pennies. Unfortunately for industrials and aerospace ETFs, the defense budget will see some pruning.

Rydex S&P 500 Equal Weight Industrials ETF (NYSE: RGI): As we noted earlier this week, the equal-weight approach pioneered by Rydex often trumps traditional ETFs, both at the sector and broader market levels. We also noted tech was one sector where equal-weight fails.

Add industrials to that list because XLI has slightly outpaced RGI on a year-to-date basis. In RGI's defense, Caterpillar and Joy Global (Nasdaq: JOYG) are pivotal components here and those aren't bad places to be these days.

4) EGShares Industrial GEMS ETF (NYSE: IGEM): Give your broker a pass if he hasn't told you about IGEM because the ETF made its debut just a month ago as part of the new suite of GEMS ETFs courtesy of Emerging Global Shares. The firm is obviously known for its emerging markets offerings and IGEM is no different, though this more of Chindia play as India and China account for over 63% of the new ETF's weight.

With IGEM, investors don't have to worry about U.S. economic growth or political policy. The ETF's 30 stocks have a weighted average market cap of $12.8 billion.

5) Global X China Industrials ETF (NYSE: CHII): One of the pioneers of the emerging markets sector-specific concept, CHII came to market in November 2009 when Global X launched its suite of China-specific sector funds. Since then, the ETF has kind of gotten lost in the China shuffle. That should not be the case, especially with Chinese stocks looking poised for a second-half rally as Beijing nears the end of its monetary tightening crusade, a scenario that could help CHII pop up on the screens of more traders and investors.

If you got the stomach for the light trading, $15 could be an attractive entry point with CHII. If resistance at $15.50 is broken on decent turnover, another $3-$4 can be had from there.


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Posted-In: Long Ideas News Sector ETFs Bonds Short Ideas New ETFs Emerging Market ETFs Technicals

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