Transportation sector-related ETFs are on the move as the markets try to recover from the fall-off last year.
The iShares Transportation Average ETF (CBOE: IYT) gained 4.7% so far this year, with Direxion Daily Transportation Bull 3X Shares ETF (NYSEArca: TPOR), which takes the 3x or +300% daily leverage of the transportation sector performance, up 14.1% year-to-date.
While transportation stocks have been rebounding, some market observers are wary of the potential pullback if the economy takes a wrong turn. Stacey Gilbert, head of derivative strategy at Susquehanna, said that while shed doesn’t expect a recession, activity in the options market indicate investors are protecting against the downside, CNBC reports.
“Your railroad stocks certainly could have 30 to 40 percent downside if there were a recession – we’re not seeing signs that’s what is coming,” Gilbert told CNBC. “Trucking and logistics names probably you could be looking at 20 percent downside — again, that’s not what’s there but we think that’s what some of the flow has been to protect against.”
Picking Areas of Strength
Erin Gibbs, portfolio manager at S&P Global, argued that investors should not take broad strokes on the transportation sector, but rather pick out areas of strength.
“When you drill into it, the real highlight and what’s driving a lot of this is the airlines so stocks like your Delta, Alaska Airlines,” Gibbs told CNBC.
Gibbs pointed out that while freight and logistics companies are expected to post 2019 earnings growth of 3.4 percent, the smallest increase of the group, “airlines have the growth of about twice the group as a whole and that’s really your strong suit so I’d say focus on your airlines.”
ETF investors can focus on airlines through the targeted US Global Jets ETF (NYSEArca: JETS). The ETF is the only available pure-play fund that focuses on the global aviation industry, including not just airlines but also airline operators and manufacturers.
For more information on Transportation ETFs, visit our Transportation category.