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ETF Specialist

Playing the Transportation Space Through an ETF

A diversified way to match Buffett's transportation bet.

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As the global recovery continues, consumer confidence rises, and exports from China grow, one way investors can play the rebound is through a basket of transportation companies. At first glance, the transportation companies may seem like they operate in commoditized spaces. However, many of the larger transporters have shown themselves to be high-quality investments. In fact, no less of an investor than the legendary Warren Buffett--whose  Berkshire Hathaway (BRK.A)(BRK.B) acquired U.S. rail giant Burlington Northern Santa Fe in February 2010--views railroads as having distinct and sustainable competitive advantages and functioning as a long-term bet on the U.S. economy and on continued demand for imports from Asia and for coal. It is obvious that many transportation firms have developed high barriers to entry through major capital investments and networks that are difficult, if not impossible, to replicate. And the rail companies in particular have begun earning their cost of capital--something that they had not done in decades.

A Leading Indicator for the U.S. Economy
The domestic transportation sector is widely perceived to be leading indicator of the U.S. economy. While some traffic is less economically sensitive, such as agricultural products, much of the demand for what transportation companies carry correlates to economic activity. The sector is benefiting from a clear economic rebound, growing consumer confidence, and increased exports from China, which has loosened its export policy. Meanwhile, Middle East turmoil has driven fuel prices up. As a result, some transportation companies are expected to reinstate fuel surcharges.

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Robert Goldsborough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.