The Industrial Select Sector SPDR (NYSEArca: XLI) is up 20% year-to-date, making it one of 2016’s best-performing non-leveraged sector ETFs.
While XLI’s charts indicate the ETF recently broke out, technical analysts believe more upside is coming for the largest industrial ETF.
XLI is up 11.1% over the past month, underscoring the point that the ETF benefited from Donald Trump’s surprise victory in November’s presidential election. XLI’s aerospace exposure is a big reason why the ETF has recently rallied.
Although the aerospace and defense industry is perceived as being beholden to Uncle Sam’s whims, the allure of late-cycle sectors, including industrials, in a rising rate environment remains in place. Industrials perform well when interest rates rise because rising rates can go hand-in-hand with economic growth.
Related: Government Programs Send Aerospace ETFs Flying
Last month, XLI saw $1.7 billion in net inflows as investors anticipated Trump would have a positive impact on defense spending and would increase fiscal spending toward repairing and expanding America’s infrastructure.
Potential catalysts for aerospace ETFs include include, renewed airline pricing power evidenced by higher ticket prices, and more fees paid per traveler, increased airline profitability, new aircraft program launches and continued demand for aircraft models and technology.
Rivals to XLI include the Fidelity MSCI Industrials Index ETF (NYSEArca: FIDU), iShares U.S. Industrials ETF (NYSEArca: IYJ) and the Vanguard Industrials ETF (NYSEArca: VIS)
“Craig Johnson, technical analyst at Piper Jaffray, says the charts suggest another 5 to 6 percent worth of upside for the XLI, the ETF tracking the sector,” reports CNBC.
Related: Lingering Issues For Industrial ETFs
The industrial space includes a large global exposure and the weakening overseas economies, notably in the emerging countries, are could weigh on demand. Furthermore, a strengthening U.S. dollar makes these exports more expensive to foreign buyers.
Still, the recent strength displayed by some of the following industrial ETFs could be a sign of more upside to come for the sector.
“Zachary Karabell, head of global strategy at Envestnet, also sees the rally in industrials as being far from over, though how big the climb will be remains unclear,” reports CNBC.