Industry and sector exchange traded funds continue to gain popularity, and more importantly, assets. That theme was on full display in December eight of 10 sectors saw inflows to the corresponding ETFs.
Only industrial and materials ETFs saw outflows in December and the same is true over the rolling six-month period. Over the rolling 12 months, all 10 sector saw inflows to the relevant ETFs according to Street Global Advisors. [Sector ETFs Pack on the Assets]
“It was a great year for U.S. equity ETFs in 2014, with $140 billion of inflows and another double-digit return for the S&P 500 index. However, many industry-focused ETFs climbed much higher, aided by offering exposure to some of the better performing segments of the market,” said S&P Capital IQ in a new research note.
In looking at some of the industry ETFs that could excite investors in 2015, S&P Capital IQ highlights some of last year’s top performers, including the SPDR S&P Transportation ETF (NYSEArca: XTN). While the industrial sector lagged the broader market last year, XTN was a star, surging almost 34% to finish the year as the top performing industrial ETF. [Meet 2014’s Best Industrial ETF]
Even with that gain, the equal-weight XTN, which is rated overweight by S&P Capital IQ, is not richly valued.
“This stems in part from its holdings that S&P Capital IQ views to be attractively valued. One such holding, Swift Transportation (NYSE: SWFT), is North America’s largest truckload carrier that is expected it to capture market share from small carriers that are struggling financially. Capacity constraints will also contribute to rising freight rates and cash flow, in our view, as the economy steadily improves. S&P Capital IQ thinks the combination of positive operating leverage and balance sheet de-risking warrant a valuation above the peer average,” said the research firm.