Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect industrial companies to thrive over time as global economies keep developing, the iShares Dow Jones U.S. Industrial ETF (NYSE: IYJ ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.
This ETF has fared reasonably, outperforming the world market over the past three, five, and 10 years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 6%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
More than a few industrial companies had strong performances over the past year. General Electric (NYSE: GE ) , for example, up 36%, recently hit a 52-week high, delivering operating-earnings increases for nine quarters in a row. Its GE Capital division is seeing its health improve and has resumed paying its parent company a dividend. GE has also announced plans to split its energy infrastructure operations into three parts. It would be performing even more impressively, though, if it weren't fighting against a global slowdown and fluctuating currencies.
Cummins (NYSE: CMI ) , up 18%, got whacked when it reduced its revenue projections, but it also hiked its dividend by a solid 25%, which reflects management confidence. Like GE and other industrials, the global slowdown and volatile currencies have created headwinds, but these factors aren't permanent -- these companies are referred to as "cyclical" for good reason. Revenue and earnings have been growing at accelerating paces for Cummins over the past few years, and it has been expanding into natural-gas-powered vehicles via a partnership with Westport Innovations.
Emerson Electric (NYSE: EMR ) , up 16%, recently reported a rise in profits, but also cut back its projections for the year as it fights sluggishness in Europe and the effects of a strengthening dollar. It noted that orders were flat to down 5% over the past three months ended in July, partly due to its exposure to Europe. Operating profit grew in its last quarter, and the company was able to convert backlog tied to flooding in Thailand into higher-margin sales.
Meanwhile, railroad company CSX (NYSE: CSX ) gained 11%. It's poised to prosper once the economy heats up again, as railroads are critical for transporting goods across the nation (in a more cost-effective way than trucks). Soft demand for coal transportation has been a problem, but it's still getting coal business, from areas without easy access to natural gas. With several characteristics of a perfect stock, the company is expanding into new and profitable areas, such as logistics services.
The big picture
Demand for industry isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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