The Industrial Select Sector SPDR Fund (XLI) is one barometer of the industrial sector, and it has been under-performing the S&P 500, up only 5.15% versus the 8.1% the broader market has rallied. However, another industrial sector ETF, the Invesco S&P 500 Equal Weight Industrials ETF (RGI), has meanwhile outperformed the S&P 500 over the same period, up 9.77% for the year. What is the reason behind this disparity?
Markets are moving lower today on news led largely by tech stocks and Netflix, whose shares dropped more than 6% and were the worst performers among “FANG” stocks. But the Industrial sector has been a bright spot for markets today.
“A lot of that story is Boeing. Boeing is the largest holding in the Industrials ETF. I think it’s more than 8%. That has under-performed naturally, but also I think it’s more of a broad spread around a lot more of the transports that have started to act better more recently, and more domestically focused industrials have helped this whole thing. So I think it’s part of a subtle emerging theme going on in the markets. Some of the more cyclical sectors of acted better. Some of the defensive and traditional growth stocks that got us to these levels have kind of kept the market together during the late summer how come in a little bit. The question is, is it just now a reflex mean reversion, or is this now a real tidal shift,” said Mike Santoli on CNBC.
Industrial Select Sector SPDR Fund (XLI) seeks to provide precise exposure to companies in the following industries: aerospace and defense; industrial conglomerates; marine; transportation infrastructure; machinery; road and rail; air freight and logistics; commercial services and supplies; professional services; electrical equipment; construction and engineering; trading companies and distributors; airlines; and building products
The Invesco S&P 500 Equal Weight Industrials ETF (RGI) is based on the S&P 500 Equal Weight Industrials Index. The Fund will invest at least 90% of its total assets in common stocks that comprise the Index. The Index equally weights stocks in the industrials sector of the S&P 500® Index. The Fund and the Index are rebalanced quarterly.
The semiconductor sector is another relevant sector to pay attention to, because it is also often indicative of where the market is headed, said Santoli.
“I think semis are the most relevant because they’re hitting highs, because the others I think you could look at those charts and say I’m a look this is still sideways for the transports, for the Russell, and we’ve kind of shuttled around here a lot more. So I do think the semis are a little bit more relevant in terms of a leading indicator,” he added.
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