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ETF Specialist

Can the Hard-Hit Transportation Sector Get Back on Track?

Interested investors may consider this ETF, the largest that holds U.S. transportation companies, which have been battered by sagging commodity prices.

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Transportation stocks have taken a beating thus far in 2015. While much of the rest of the U.S. stock market has posted decent performance, rails, airlines, truckers, and other transports have taken steps backward, for several different reasons. Airlines have sagged amid investor fears about greater carrier capacity hindering airline companies' profitability, while railroads have been hit hard by slumping commodity prices and reduced energy-related volumes, particularly in coal, which has been hit hard by falling Chinese demand and a glut of supply from Australian companies. Making matters worse were labor disputes at intermodal ports on the West Coast, which hampered the western railroads' intermodal carload volumes.

Many of the dynamics that have pressured transportation companies this year are temporary in nature and certainly have the potential to reverse. In the meantime, many transports are companies with economic moats, which means that Morningstar's equity analysts believe they have distinct and sustainable competitive advantages. The transportation sector reflects the health of the overall economy. Investors interested in getting exposure to it should consider  iShares Transportation Average (IYT), which offers concentrated exposure to the transportation industry. It's the largest transportation-related exchange-traded fund available, and it holds 20 rail companies, trucking firms, delivery-services companies, freight forwarders, airlines, and marine transport firms.

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