Some exchange traded funds, gold-related fare being prime examples, cannot wait for 2013 to end. Others will be looking to keep momentum established in 2013 going in the new year.
Industrial ETFs were on a roll in the latter half of 2013 with the Industrial Select Sector SPDR (NYSEArca: XLI) and the Vanguard Industrials ETF (NYSEArca: VIS) each posting gains of about 22%. More of the same could be in store in 2014 as investors continue embracing cyclical sectors and the U.S. economy solidifies.
“In the first quarter, when looking at average returns and frequencies of beating the 500, the cyclical sectors have stood out, with Consumer Discretionary, Energy, Industrials and Information Technology recording the highest returns and batting averages,” said S&P Capital IQ in a new research note.
S&P Capital IQ has “a positive fundamental outlook on the Industrials sector due to expected sales benefits from rising emerging and frontier market exposure, an improving housing-led U.S. recovery, stabilization in Chinese growth in the 7.5% area, Europe’s return to growth and easing U.S. fiscal drag. In addition, operating leverage is rising with revenues thanks to aggressive cost cutting and manufacturing automation initiatives put in place by most companies during the extreme business downturn of 2008 and 2009.”
The research firm has four-star ratings on Dow components Boeing (NYSE: BA), General Electric (NYSE: GE) and United Technologies (NYSE: UTX).
Since the start of December, former Dow component Honeywell (NYSE: HON) announced a $5 billion buyback plan while current Dow members General Electric (NYSE: GE) and Boeing (NYSE: BA) unveiled dividend increases. On Dec. 17, 3M (NYSE: MMM) boosted its dividend by a third while adding it could buy back up to $22 billion of shares through 2017. [A Sturdy ETF for Industrial Stocks]
GE, United Technologies and Boeing combine for 22.6% of XLI’s weight. S&P Capital IQ has an overweight rating on XLI. The ETF has $9.8 billion in assets under management and nearly $2.1 billion of that total has flowed into the fund since the start of the fourth quarter.