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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect industrial companies to start doing well again once the global economy starts heating up, the First Trust Industrials/Producer Durables AlphaDEX Fund ETF (NYSE: FXR ) 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 First Trust ETF's expense ratio -- its annual fee -- is 0.70%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has outperformed the world market over the past three and five 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.
The industrials sector will see demand grow once the world's economies get back on track. While there are some signs that that is happening, some fear that it won't happen soon. (One promising note is China's recent plan to spend more than a quarter of a trillion dollars on infrastructure.)
More than a handful of materials companies have had strong performances over the past year. Diversified manufacturer Carlisle Companies (NYSE: CSL ) surged 37%, serving the commercial roofing, energy, agriculture, lawn and garden, mining and construction equipment, aerospace and electronics, dining and food delivery, and health care industries. It recently reported third-quarter revenue up 5%, and operating income up 30%. The company has been focusing on strengthening its balance sheet, boosting its profit margins, and investing in future growth.
Trinity Industries (NYSE: TRN ) , up 16%, serves the industrial, energy, transportation, and construction sectors, making products such as rail cars, ready-mix concrete, fertilizer containers, and gas tanks. Trinity is poised to profit from growing interest in railroad transportation in view of steep fuel costs, but some worry that steep leasing costs might reflect flagging railcar demand. Some see it as more stable than the overall railroad industry.
Eaton (NYSE: ETN ) , a power management company, gained 7%, profiting from a shift in focus from international projects to more U.S.-based ones. Management hasn't exactly been stoking the flames of confidence, though, with Eaton's CEO warning that the upcoming "fiscal cliff" has the company in "economic purgatory," and lowering near-term performance expectations. Eaton is growing via acquisition, too, recently announcing plans to gobble up Cooper Industries (NYSE: CBE ) for more than $11 billion.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. AECOM Technology (NYSE: ACM ) , which offers architectural, engineering, and construction services, among other things, gained only 2%. Revenue growth has been outstripping earnings, but free cash flow recently skyrocketed, easing investors' concerns about steep debt. The company is racking up business, with recent orders worth hundreds of millions of dollars, for government agencies and foreign nations.
The big picture
Demand for industrial goods 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.
Among industrials, Caterpillar is a leader with solid competitive advantages, and worth considering for your portfolio. Read all about Caterpillar's strengths and weaknesses in our brand new report. Just click here to access it now.