The iShares Transportation Average ETF (NYSEArca: IYT) and the SPDR S&P Transportation ETF (NYSEArca: XTN) each jumped 6% last week in the last sign transportation stocks are roaring back. XTN, the equal-weight transportation ETF, is up more than 11% since the start of the fourth quarter.
Some industry observers believe transportation stocks will see further upside, particularly is the Trump Administration can make its long-awaited infrastructure plans a reality next year.
“The transports will see further upside, said Michael Bapis, partner and managing director of The Bapis Group at HighTower Advisors, particularly if the Trump administration’s proposals for infrastructure improvements take shape,” according to CNBC.
Dating back to the 2016 presidential campaign, infrastructure investments have been receiving renewed attention. Going forward, the allure of infrastructure investing, which investors can easily engage in via exchange traded funds, could and should rise as governments around the world finally commit the capital necessary to upgraded dated and dangerous bridges, pipelines and roads.
The American Society of Civil Engineers calculated that the U.S. will fall $1.44 trillion short of the $3.32 trillion required to invest in infrastructure through 2025.
“The transports look attractive on a technical basis, said Rich Ross, head of technical analysis at Evercore ISI. Specifically, he said the recent action in the group appeared to mirror the pattern immediately following the 2016 election,” according to CNBC.
The infrastructure asset category is also a good portfolio diversifier as the investment is relatively uncorrelated to the equity markets. In tough and good times, people will still utilize the basic infrastructures of an well-functioning economy, which also makes infrastructure stocks a decent defensive play.
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 lagged broader equity benchmarks, but that could change in the second half.
Although oil prices have recently rebounded, the U.S. Global Jets ETF (NYSEArca: JETS) is sporting a fourth-quarter gain of over 10%.
Airlines are also a significant part of IYT’s lineup. There are encouraging fundamental factors for airlines, including low oil prices. Fuel is the largest input cost for airlines. The improving U.S. economy could encourage more business and leisure travel and airlines are generating impressive amounts of cash.
JETS follows the U.S. Global Jets Index, which uses fundamental screens to select airline companies, with an emphasis on domestic carriers, along with global aircraft manufacturers and airport companies.
For more information on Transportation ETFs, visit our Transportation category.