It has been a rough year for industrial sector exchange traded funds. The Industrial Select Sector SPDR (NYSEArca: XLI) is off 5.5% year-to-date. Among the nine sector SPDRs, only the Utilities Select Sector SPDR (NYSEArca: XLU) and the Energy Select Sector SPDR (NYSEArca: XLE) have been worse.
A month ago, only the Consumer Staples Select Sector SPDR (NYSEArca: XLP) was more heavily shorted among the nine sector SPDRs than XLI. A strong U.S. dollar and declining energy sector capital spending are among the issue plaguing industrial ETFs this year. U.S. manufacturing, which makes up 12% of the economy, could remain weak on the lingering effects of the dollar and fuel costs. [Industrial ETFs Could Also Slip On Oil]
XLI has also been stymied by severe declines by the Dow Jones Industrial Average and railroad operators. Over the past month, the Dow is down 1.4%, which does not sound like much, but it is enough to weigh on XLI. The ETF allocates 28.1% of its combined weight to General Electric (NYSE: GE), 3M (NYSE: MMM), Boeing (NYSE: BA), United Technologies (NYSE: UTX) and Caterpillar (NYSE: CAT). Those stocks combine for 19.4% of the Dow. [Dollar’s Loss May Be Large-Cap ETFs’ Gain]
Airlines and railroads, a combined 14.3% of XLI’s weight, have also been problematic for the ETF. Over the past 90 days, none of XLI’s marquee railroad holdings have traded higher. Three of those four stocks have posted double-digit losses and the best of the group has been CSX (NYSE: CSX) with a 90-day loss of nearly 6%.
Obviously, these are not encouraging facts, but some analysts see opportunity with the moribund industrial sector.