The iShares Transportation Average ETF (NYSEArca: IYT), the tracking exchange traded fund for the Dow Jones Transportation Average, is off nearly 22% over the past 12 months and slipped to a new 52-week low on Monday.
Transportation stocks were expected to benefit from lower oil prices and while that has been the case for airline stocks, other industry groups represented in IYT, including railroads, have struggled. Railroad operators, which are nearly 22% of IYT’s weight, making that the ETF’s third-largest industry allocation, are giving investors cause for concern with transportation stocks.
Stymied by tumbling shares of railroad operators and airlines that have surprisingly fallen in unison with oil prices, transportation exchange traded funds have recently been disappointments. [Transportation ETFs Need Help]
Last year, the railway industry weakened on lower rail traffic after the drop in energy prices, notably from oil and coal companies. Over the first 35 weeks 2015, U.S. railroads experienced cumulative volume that was down more than 4% year-over-year. However, the pressures may have already been priced in, and the industry has a number of factors that will help support further growth.
Many railroad companies have become more efficient, cutting costs wherever they can, which should help bolster their bottom line ahead. Additionally, market observers are optimistic about a cyclical recovery where U.S. consumers and businesses spend more, which would add to increased activity through railways and transportation sectors. Railroads are popular plays among some of the largest investors, including Bill Gates and Warren Buffett. [Sector ETF to Play Warren Buffett, Bill Gates’ Pick]
“BofA analysts led by Ken Hoexter look at the past 30 years to see what this type of steep decline usually means for the U.S. economy. What they found wasn’t particularly encouraging: All such drops in rail carloads preceded, or were accompanied by, an economic slowdown,” according to Bloomberg.
iShares Transportation Average ETF
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.