Special 10-Part Series on the Premier Sector Funds: Investing in Industrials

And this old world, is a new world
And a bold world for me, yeah-yeah

–Nina Simone, “Feeling Good”

As the new year looms large, some of you may be wondering why I didn’t choose the lyrics regarding a new dawn and a new day, but the reason is simple: it is a bold world for me, and for all of you. It’s a bold world for all of us who strive to make it one — and moving into 2025, making bold choices has never been more important.

Currently, even the markets are making bold moves and are setting up to finish with a bang as we leave 2024. So, with the indices pushing and pulling here, let’s take a look at a benchmark ETF in its sector — the Industrial Select Sector SPDR Fund (NYSEArca:XLI).

XLI seeks to provide effective representation of the industrial sector of the S&P 500 Index (which has seen a jump of 0.2% in recent days) and offer exposure to the corner of the U.S. economy that includes transportation firms, providers of commercial and professional services and manufacturers of capital goods.

Given this fund’s sector-specific focus, it is not often used as a core allocation, but rather as a means of implementing a tactical tilt toward the industrials sector. Unlike a core allocation, investors may actively adjust this holding in an effort to capitalize on market shifts and ultimately “time the market” to potentially generate higher gains.

Adding to the fund’s “active” appeal is its impressive liquidity – validated by the narrow bid-asks spreads it generally sports. This type of spread indicates high liquidity and a readily available market for the specific asset class. Remember, it’s a bold world, and XLI is looking to be a bold benchmark for those targeting a tactical play.

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XLI has net assets of $22.42 billion and assets under management of $20.92 billion. The fund has an average volume of 7,435,895, speaking once more to its impressive liquidity and tradability. Given this impressive volume, it has a moderate expense ratio of 0.09%. Moreover, XLI offers a dividend yield of 1.44% and paid $1.90 per share in the past year.

Courtesy of stockcharts.com.

The chart above speaks for itself, and it tells the story of a strong fund — a fund that appears unlikely to retreat much before rising again. Now, XLI took a dip in December, but given its strong liquidity and active trading patterns, there is no evidence to suggest that the dip will last.

If you look closely, you can see that the fund’s share price is ticking upward, and even between this trading day, and the last, it has seen a positive change. Even though its daily trading has seen its share of highs and lows, its moving averages have been nothing but consistent, and better yet consistently upward.

Sometimes, being bold isn’t about playing it safe – but playing it bravely, and XLI may be able to offer interested investors that brave opportunity.

XLI is comprised of 80 holdings and its top 10 make up 34.32% of its total assets. These include GE Aerospace (GE), 4.47%; Caterpillar Inc. (CAT), 4.46%; RTX Corporation (RTX), 3.67%; Honeywell International (HON), 3.43%; Uber Technologies, Inc. (UBER), 3.42%; Eaton Corporation plc (ETN), 3.38%; Union Pacific Corporation (UNP), 3.37%; Automatic Data Processing, Inc. (ADP), 2.83%; Deere & Company (DE), 2.70% and The Boeing Company (BA), 2.57%.

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In summation, XLI is an incredibly liquid fund, it offers an appealing dividend and may be able to provide interested investors with a strong tactical tilt toward the industrials sector. While it may not be a core allocation, it may be just the bold play to bring in the new year with a bang.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.