If you’re interested in broad exposure to the Industrials – Broad segment of the equity market, look no further than the Industrial Select Sector SPDR ETF (XLI), a passively managed exchange traded fund launched on 12/16/1998.
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.
Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Industrials – Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 5, placing it in top 31%.
The fund is sponsored by State Street Global Advisors. It has amassed assets over $15.15 billion, making it the largest ETF attempting to match the performance of the Industrials – Broad segment of the equity market. XLI seeks to match the performance of the Industrial Select Sector Index before fees and expenses.
The Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors.
When considering an ETF’s total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.
Annual operating expenses for this ETF are 0.10%, making it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 1.57%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund’s holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Industrials sector–about 100% of the portfolio.
Looking at individual holdings, Raytheon Technologies Corporation (RTX) accounts for about 5.14% of total assets, followed by Honeywell International Inc. (HON) and Union Pacific Corporation (UNP).
The top 10 holdings account for about 38.74% of total assets under management.
Performance and Risk
The ETF has added about 4.45% and is down about -1.95% so far this year and in the past one year (as of 01/13/2023), respectively. XLI has traded between $82.84 and $105.85 during this last 52-week period.
The ETF has a beta of 1.12 and standard deviation of 27.59% for the trailing three-year period, making it a medium risk choice in the space. With about 75 holdings, it effectively diversifies company-specific risk.
Industrial Select Sector SPDR ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLI is a great option for investors seeking exposure to the Industrials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.
First Trust IndustrialsProducer Durables AlphaDEX ETF (FXR) tracks StrataQuant Industrials Index and the Vanguard Industrials ETF (VIS) tracks MSCI US Investable Market Industrials 25/50 Index. First Trust IndustrialsProducer Durables AlphaDEX ETF has $1.58 billion in assets, Vanguard Industrials ETF has $3.83 billion. FXR has an expense ratio of 0.61% and VIS charges 0.10%.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.