Launched on 12/16/1998, the Industrial Select Sector SPDR ETF (XLI) is a passively managed exchange traded fund designed to provide a broad exposure to the Industrials – Broad segment of the equity market.
An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.
Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Industrials – Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 5, placing it in top 31%.
The fund is sponsored by State Street Global Advisors. It has amassed assets over $14.98 billion, making it the largest ETF attempting to match the performance of the Industrials – Broad segment of the equity market. XLI seeks to match the performance of the Industrial Select Sector Index before fees and expenses.
The Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors.
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.
Annual operating expenses for this ETF are 0.10%, making it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 1.62%.
Sector Exposure and Top Holdings
ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund’s holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Industrials sector–about 100% of the portfolio.
Looking at individual holdings, Caterpillar Inc (CAT) accounts for about 4.50% of total assets, followed by Union Pacific Corp (UNP) and Boeing Co/the (BA).
The top 10 holdings account for about 38.84% of total assets under management.
Performance and Risk
So far this year, XLI has gained about 7.74%, and is up roughly 17.12% in the last one year (as of 09/18/2023). During this past 52-week period, the fund has traded between $82.84 and $110.75.
The ETF has a beta of 1.12 and standard deviation of 18.36% for the trailing three-year period, making it a medium risk choice in the space. With about 79 holdings, it effectively diversifies company-specific risk.
Industrial Select Sector SPDR ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLI is a great option for investors seeking exposure to the Industrials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.
First Trust Industrials/Producer Durables AlphaDEX ETF (FXR) tracks StrataQuant Industrials Index and the Vanguard Industrials ETF (VIS) tracks MSCI US Investable Market Industrials 25/50 Index. First Trust Industrials/Producer Durables AlphaDEX ETF has $1.68 billion in assets, Vanguard Industrials ETF has $4.36 billion. FXR has an expense ratio of 0.61% and VIS charges 0.10%.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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