Industrial ETFs Outperforming in Early 2012

Posted by Adam Gomez

When constructing a well-diversified portfolio, exchange traded fund investors should consider including various sectors to enhance their market exposure. For instance, the industrial sector may provide individuals with exposure to strong earnings growth, according to S&P analysts.

ETFs tracking the industrial sector led the market lower during the summer sell-off. However, industrial ETFs have outperformed the overall S&P 500 since the market bottom in October.

S&P Capital IQs Equity Strategy Group raised its recommendation on the industrials sector to overweight due to macroeconomic factors and strong earnings growth potential, according to a research note.

According to Alec Young, Global Equity Strategist at S&P, the sector may outperform as investors discount the recovery in the U.S., along with strong growth from Asia, while the Eurozone contains its financial problems. Young also projects industrials will gain 13% over 2012, compared to the S&P 500s 8.1% estimate.

Jim Corridore, industrials and logistics equity analyst at S&P, says heavy industrial machinery, equipment rental, truck and truck engine manufacturing and package delivery will all benefit from higher global demand this year.

S&P Capital IQ ranks the sector as overweight on performance, risk and cost considerations, including bid/ask spread, expense ratio, standard deviation and technical analysis, among others.

S&P also raised its ranking on industrials sector ETFs, including:

The three are weighted toward the aerospace and defense, machinery and industrial conglomerates sub-sectors.

These ETFs offer strong, diversified exposure to the industrials sector, which S&P Capital IQ is recommending, Todd Rosenbluth, S&P Capital IQ ETF analyst, said in the note.