ETF Trends
ETF Trends

In a time where crude oil is oscillating like a tetherball, the economy is crumbling and the majority of business are turning to lean principles, the railroad energy and exchange traded funds (ETFs) that track this form of transportation are gearing up for the long haul.
Many large corporations are shunning air transportation, searching for alternative modes of moving cargo, and are turning to the railroads to get goods from point A to point B.

Erin Yerke of Investment News lists two reasons why the railroads are appealing:

  • President Barack Obama: The fascination of going green and improving the environment is a good thing for railroads in the long run. It is far cleaner to use railroads than diesel fueled 18-wheelers. Additionally, Obama’s plans to revamp the nation’s infrastructure will include the outmoded railroads.
  • Weak Economy: The weak economy is hurting all firms’ bottom lines, but one plus for the railroad sector is that it is much cheaper to transport via railway than via air. Additionally, some air freight and cargo companies, such as FedEx (FDX) and DHL International, are cutting back on the number of planes being utilized.

It appears that as long as the economy stays weak and President Obama sticks to his guns, the railroad industry will continue to defy the general trend that the transportation industry moves in tandem with the economy.

If you want to gain exposure to the railroads, you might take a look at the iShares Dow Jones Transportation Average (IYT). Four out of the top 10 holdings are major rail freight carriers, and the fund is down 9.5% over the last month. Also note that it’s still sitting below its trend lines. But could there be potential down the tracks?

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.