- The oldest available Industrials sector ETF has outperformed an S&P 500 index fund by 1.45% CAGR over the last 20 years
- There are currently 23 Industrials sector ETFs available; 13 of these are 10 years old or older
- The best performing Industrials sector ETF has outperformed an S&P 500 index fund by 4.41% CAGR over the last 12 years
The Industrial Select Sector SPDR® Fund (XLI) is the oldest available Industrials sector ETF. Its’ inception date was December 16, 1998. Since inception, this ETF has outperformed an S&P 500 index fund by 1.45% CAGR. In the chart below, you can see the benefit of this outperformance where a $10k investment in XLI grew to $42k while a $10k investment in the S&P 500 only grew to $32k. This sector ETF also has a market correlation of 0.88, which can be useful when building a diversified equity portfolio.
XLI vs S&P 500 index fund: January 1999 – November 2018
Source: https://www.portfoliovisualizer.com/
XLI vs SPY: December 22, 1998 – December 23, 2018
Source: https://www.koyfin.com/home
Morningstar currently shows 23 ETFs available in the Industrials category. Of those 23 funds, 13 have inception dates that are 10 years or older. I have compared each of these older Industrials ETFs head-to-head utilizing the back-testing tools at Portfolio Visualizer and Koyfin. The rankings below are based solely on performance. I did not consider investor suitability, commission costs, volatility, valuations, liquidity or any other metric for this comparison.
Source: https://www.morningstar.com/ on 12/23/2018
The 4 top performing Industrial sector ETFs were ITA, PPA, RGI and IYT. The next 2 charts will display how each of these 4 ETFs compared with each other and an S&P 500 fund.
ITA vs PPA vs RGI vs IYT: December 2006 – November 2018
Source: https://www.portfoliovisualizer.com/
ITA vs PPA vs RGI vs IYT vs SPY: November 7, 2006 – December 23, 2018
Source: https://www.koyfin.com/home
Although all 4 of these funds have performed well and are considered Industrials ETFs, they track significantly different indexes. So, let’s look at each of these funds’ stated objectives and product details.
ITA – The iShares U.S. Aerospace & Defense ETF seeks to track the investment results of an index composed of U.S. equities in the aerospace and defense sector. Exposure to U.S. companies that manufacture commercial and military aircrafts and other defense equipment. Targeted access to domestic aerospace and defense stocks. Use to express a sector view. (Best long-term performance.)
PPA – The Invesco Aerospace & Defense ETF (Fund) is based on the SPADE™ Defense Index (Index). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index is designed to identify a group of companies involved in the development, manufacturing, operations and support of US defense, homeland security and aerospace operations. The Fund and the Index are rebalanced and reconstituted quarterly. (Lowest volatility of top 4 funds.)
RGI – The Invesco S&P 500® Equal Weight Industrials ETF (Fund) is based on the S&P 500® Equal Weight Industrials Index (Index). The Fund will invest at least 90% of its total assets in common stocks that comprise the Index. The Index equally weights stocks in the industrials sector of the S&P 500® Index. The Fund and the Index are rebalanced quarterly. (Lowest expense ratio of top 4 funds.)
IYT – The iShares Transportation Average ETF seeks to track the investment results of an index composed of U.S. equities in the transportation sector. Exposure to U.S. airline, railroad, and trucking companies. Targeted access to domestic transportation stocks. Use to express a sector view. (Best 15-year performance. Lowest US market correlation, lowest P/E & P/B ratios and lowest turnover of top 4 funds.)
Though the future will not be the same as the past, the Industrials sector has a long history of outstanding performance. The performance of this sector and its correlation to US markets potentially makes it great way to diversify an equity portfolio. It is my opinion that investors who want to invest in this sector should see satisfactory results by choosing one of the top 4 funds in the Industrials category.
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: We own shares of ITA and we intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.
Previous Deep Value ETF Accumulator article on the Industrials sector: JANUARY 22, 2018 Best Long-Term Performance Industrials Sector ETFs