On September 26th we discussed the Transportation sector here in a cautious sense, because at the time a few weeks ago there were headlines that involved potential terrorist plots involving subways in cities like NYC.
Fortunately, nothing happened, and the headlines themselves dissipated which is a relief no doubt. Unfortunately, the Transports sector has gotten absolutely punished for different reasons lately, as we see IYT (iShares Transportation Average, Expense Ratio 0.44%) struggling with its 200 day MA lately, down sharply from our original highlight. What are the cause(s) for the rapid sell-off in the sector?
While it may not be one singular item, the daily confluence of “Ebola” headlines and updates that have been flooding the newswires in the past week or so have decimated the Airline stocks lately, which in the case of IYT there is some exposure there, with Airlines making up >13.4% of the overall portfolio.
Larger exposure here is in Railroads (>25.9%), Delivery Services (think UPS or FDX) >22.6%, and Trucking (>20%). In fact, the top holding in the portfolio is FDX (>10.7%) weighting, which temporarily traded at its lowest levels since early September briefly this morning before reversing sharply with the market.
The sector will likely remain volatile as long as “Ebola” headlines continue to dominate the tape, as they continue to have a vicious ripple effect into an already weak tape. IYT is by far the largest “Transports” specific ETF out there, with about $1.29 billion in assets under management, followed by the much smaller XTN (SPDR S&P Transportation, Expense Ratio 0.35%).
Unlike IYT which is market cap weighted, XTN employs the modified equal-weighting method that is becoming more well-known across several SPDR products, where no one component becomes too large a portion of the overall portfolio thanks to regular and systematic re-balancing (trimming the winners, and buying more shares of the laggards). Also “Transports” specific is SEA (Guggenheim Shipping Index, Expense Ratio 0.65%) which has about $82 million in AUM, and it has been exceptionally active like the rest of the sector lately in terms of trading volume.