Transportation ETFs: The Good and Bad | ETF Trends

As our economy improves, the transportation sector gets busy transporting goods and services around the country. The transportation exchange traded fund (ETF) is rolling along on improving sentiment.

It’s railroad companies that have garnered the most attention after announcing impressive quarterly earnings, writes Quint Tantro for Minyanville. Tantro particularly notes that transportation companies appear to be consolidating after gaining from July lows. [Transportation ETF: Laying Down Some Tracks.]

While those third-quarter earnings are a nice boost for iShares Dow Jones Transportation (NYSEArca: IYT), the sector has its challenges:

  • The greatest impediment to the performance of transportation companies will come from fuel costs, as they are a major component in operating expenses. Oil prices are elevated at $80 a barrel, however, that’s a far cry from the nearly $150 a barrel reached a few years ago.
  • Clean energy legislation could also cost the sector in the short-term. In an attempt to increase energy efficiency and reduce air pollution, the government passed the first national emissions and fuel economy standards for heavy vehicles on Monday, reports John M. Broder for The New York Times. Lisa P. Jackson, administrator of the Environmental Protection Agency, estimates that “this program will save $41 billion and much of it will stay home in the U.S. economy rather than paying for imported oil.”

If you want exposure to this sector, it’s worth considering the economic environment first. Transportation relies heavily on domestic demand and a robust export sector, too, so if those areas are flailing, the ETF could struggle.

For more information on the transportation sector, visit our transportation category.

  • iShares Dow Jones Transportation (NYSEArca: IYT)

For full disclosure, Tom Lydon’s clients own shares of IYT.

Max Chen contributed to this article.

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.