The transportation sector and related-exchange traded funds (ETFs) have experienced a nice run up on an improving U.S. economy. Some transportation ETFs are staying steady above trendlines, but investors need to watch out for any potential backlash from volatility in the global economy.
While investment guru Warren Buffet has made individual plays on specific transportation companies, covering a key sector with an ETF may be a smarter and safer play.
Currently, IYT’s underlying benchmark, the Dow Jones Transportation Index, is trading at an estimated 19x forward earnings, as compared to the Dow Industrials’ forward price-to-earnings ratio of 12.3, which illustrates the momentum that the transportation sector has enjoyed over the last 6 months.
As long as transportation ETFs like IYT are above their 200-day moving average, investors can remain relatively optimistic about the funds. However, if the funds fall below the trendline due to volatility in the global economy, it may be time to get out.