Transport ETFs Look to Recover -- Journal Report
By Gerrard Cowan
Transportation is a barometer of economic health, so stocks in
the sector took a beating during the initial pandemic lockdowns.
But as the economy begins to reopen, could investors grab
opportunities in these stocks?
The transport sector mainly comprises companies in the railroad,
trucking, airfreight, marine and logistics businesses. There are
two major exchange-traded funds focused on the sector, both of
which have suffered from the collapse in economic activity
domestically and globally. The $667 million iShares Transportation
Average ETF (IYT) is down 5.7% for the year to date, while the $208
million SPDR S&P Transportation ETF (XTN) is down 10%.
There have been some bright spots among transportation
companies, says Neena Mishra, director of ETF research at Zacks
Investment Research. For example, package-delivery companies such
as FedEx and United Parcel Service have held up relatively well
over the course of the year, benefiting from strong e-commerce
demand. And the IYT and XTN ETFs have climbed along with the
broader U.S. market since the beginning of May, rising 30% and 24%,
respectively, beating the S&P 500's 17% return in that period.
"The reopening of many parts of the economy helped" transportation
companies, Ms. Mishra notes.
However, the overall picture for 2020 is gloomier, she says.
Freight volumes are still down sharply in many sectors, and even
before the pandemic, concerns about U.S.-China trade tensions were
negative for IYT and XTN, Ms. Mishra says. In addition, both
transportation ETFs have holdings in companies focused on passenger
travel, and it isn't clear when travel will return to prepandemic
levels, she says. Any recovery in the sector could be very slow,
warns Ms. Mishra.
Jeff Spiegel, U.S. head of iShares Megatrend and International
ETFs, says valuations of the companies in the iShares
transportation ETF look attractive when compared with the broader
market. E-commerce could be a particular driver of growth in the
future, Mr. Spiegel says, pointing to a report from Adobe that
found that online spending in the U.S. during the four months
through June was $77 billion higher than Adobe had predicted. In
addition, iShares thinks any flare-up of international trade
disputes could be a boon to domestic transport in the long run,
driving an increase in U.S.-produced goods, Mr. Spiegel says.
Mike Arone, chief investment strategist in the U.S. for the SPDR
funds, says there could be an increase in mergers and acquisitions
in the transportation industry over the next year, following the
disruption caused by the coronavirus. Additionally, supply-chain
migration from low-cost locations abroad to nearer where products
are consumed in the U.S. could provide a boost for domestic
transportation companies, he says. Mr. Arone advises investors to
watch out for companies that apply technology and data to
effectively manage their businesses, as these "will emerge as the
winners in the industry over the next year."
Mr. Cowan is a writer in Northern Ireland. He can be reached at
(END) Dow Jones Newswires
August 08, 2020 05:14 ET (09:14 GMT)
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