This ETF Profits From Industrial Revival

published 5 May 2013

Four years after the Great Recession brought the economy to its knees, industrial America is experiencing a renaissance. Thanks to the housing recovery, the fracking boom, solid demand from emerging markets and low interest rates, the outlook for U.S. manufacturers is as promising as it has been in years. You would think you could play the trend by buying an exchange-traded fund that tracks the Dow Jones industrial average. But the venerable Dow contains a number of companies, such as American Express and Disney, that may manufacture a lot of profits but don't make anything tangible.

Enter the Industrial Select Sector SPDR Fund (symbol XLI). This ETF replicates a Standard & Poor’s index that contains 60 stocks in 12 subsectors, ranging from aerospace and defense to railroads and trucking. Most of the ETF’s holdings pay dividends, and its yield should be similar to that of Standard & Poor's 500-stock index, says David Mazza, an ETF manager at State Street Global Advisors, which runs the SPDR funds. The fund mostly holds mature companies, but analysts expect their earnings to grow in line with the broad market over the next few years.

No single stock can account for more than 25% of the index’s assets. The largest holding, General Electric, is about half that figure. Like the index, the ETF is rebalanced at the end of every quarter. Because the S&P 500's turnover is low, the ETF's holdings generally remain the same throughout the year.

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Tan joined Kiplinger in June 2012 from Bloomberg News, where she was a reporting intern covering mergers and acquisitions and IPOs in New York. Prior to that, she worked as a production intern at CNN in Washington, D.C., where she assisted with political research and live broadcasts. She also covered financial regulation, including the Dodd-Frank Act, as a reporter for the Medill News Service. Before that, she wrote about economics and commodities in Chicago. She has written for the New York Times, MarketWatch, Businessweek.com, United Press International and the San Francisco Chronicle. She holds a BBA in finance from the University of Michigan and an MS in journalism from Northwestern University.