Market Overview

A High-Flying Industrial ETF

A High-Flying Industrial ETF

Industrials, the sixth-largest sector weight in the S&P 500, usually is not associated with excitement. “Solid” is more like it, and that is what the sector has been this year as some of the largest industrial exchange-traded funds are sporting gains of just over 10 percent.

A Close Look AT AIRR

The First Trust RBA American Industrial Renaissance ETF (First Trust Exchange Traded Fund VI (NASDAQ: AIRR)) is adding some excitement to traditional industrial ETFs with a year-to-date gain of over 20 percent. AIRR tracks the Richard Bernstein Advisors American Industrial Renaissance Index.

Related Link: Industrial Conglomerate Stocks Under Pressure Amid Light Guidance From Honeywell

“RBA believes there are increasing reasons to expect that the United States may regain industrial market share, based on a number of factors, including: access to cheap energy sources; the relative stability of the U.S. market compared to many emerging markets; and growing availability of bank financing for manufacturers,” according to a First Trust Statement.

AIRR's underlying benchmark, the Richard Bernstein Advisors American Industrial Renaissance Index, selects member firms from the Russell 2500 Index, while excluding those companies not directly involved in infrastructure, manufacturing or community financial services and banking. AIRR's bank holdings are required to hail from states seen as manufacturing centers and cannot exceed 10 percent of the ETF's weight.

AIRR's Holdings, Allocations

Currently, financials account for just over 5 percent of AIRR's weight and the ETF does not feature large allocations to standard industrial stocks such as Boeing Co (NYSE: BA) and General Electric Company (NYSE: GE) that dominate the usual suspects of industrial ETFs.

In fact, those stocks and comparable names are not found in AIRR at all. AIRR's approach is a good idea at a time when diversified conglomerates and railroad operators are not keeping up their end of the industrial ETF bargain. Still low commodities prices are weighing on diversified conglomerates. Those stocks are usually major components in standard industrial ETFs.

AIRR's 42 holdings have a median market value of $1.22 billion and none have a market value exceeding $5.96 billion. Although the ETF can be considered a small-cap fund, its valuation metrics, including price-to-earnings and price-to-book compare favorably with the Russell 2000.

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