Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the transportation sector to thrive over time, especially as the global economy gets back on its feet, the SPDR S&P Transportation ETF (NYSE: XTN ) 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 transportation ETF's expense ratio -- its annual fee -- is a low 0.35%. The fund is small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF is too young to have a sufficient track record to assess. And, regardless, 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 19%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several transportation companies had strong performances over the past year. United Parcel Service (NYSE: UPS ) , for example, gained 16%, and is obviously well positioned to profit from our growing reliance on e-commerce, as it delivers more and more items we order online. It's also benefiting from less obvious trends, with the folks at Bloomberg reporting that a surge in refinancing has led to many documents being sent back and forth between various parties. UPS is also expanding in rapidly growing economies such as China, where it serves more than 300 cities.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. The railroad company CSX (NYSE: CSX ) shed 6%, for example, while Norfolk Southern (NYSE: NSC ) gained 3%. Railroads will also benefit from a recovering economy, as it's generally more cost-effective for many companies to ship items by rail than by truck. Low natural gas prices may also offer a boost, as energy companies have fracking equipment transported, and possibly even convert engines to run on gas. Some worry about America's shrinking reliance on coal, which travels by train, but the rest of the world's demand isn't likely to shrivel up any time soon.
C. H. Robinson Worldwide (Nasdaq: CHRW ) , which provides logistical services for transporters, lost 22%, with its airlines and trucking segments hurt by rising fuel costs. It has a history of being able to pass along price increases to its customers, though, which positions it favorably among its peers. Bulls also like its cash-rich, debt-free balance sheet.
The big picture
Demand for transportation services 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.
If the rising cost of fuel has you down, consider checking out these three companies that our team at Stock Advisor feels will outperform when oil prices are high.