Since the beginning of Q3, Transportation has shown notable improvement within the Asset Class Group Scores page.
In May and early June, one industry of the market the analyst team closely monitored was Transportation as it was among the laggards off the April lows. Though showing improvement from a trend perspective at the time, Transportation fell behind the relative leaders off the market’s lows, broader Technology, and other subsectors within Industrials. Since the beginning of Q3 though, the industry has benefitted from rallies within other subsectors. Airlines were the primary culprits for upside action in recent weeks, helped in large part by headline earnings from names like Delta (DAL) and United (UAL) helping lift the rising tide.
While subsectors like Airline (DWAECAIRLINE) have taken most of the limelight within Transportation related subsectors to begin Q3, Marine Transports (DWAECMARINETRANS), Tires (DWAECTIRE), and Trucking (DWAECTRUCKING) have also outpaced broader market US equity indices, while Transportation Services (DWAECTRANSVC), Railroads (DWAECRAILROAD) and Aerospace (DWAECAEROSPACE) and Air Freight (DWAECAIRFREIGHT) have all been positive.
Recent improvements within Transportation have brought the group up from an average group score in low 3 range on the Asset Class Group Scores page to end of June to above 4 for the first time since September 2023. Prior to the recent pop in the group’s average score, Transportation had scored as low as 1.6 in early April, and the notable climb from those lows makes the group second-most improved as defined by Score Direction (an evaluation of average group score improvement within a six-month timeframe) among the sector groups and fourth among all 134 asset groups on the Asset Class Group Scores page. Transportation now ranks among the upper echelon of groups scoring above 4 highlighting the resurgence as a leader in the intermediate term.
Given the improvement within Transportation, some may be tempted to look for the first available ETF or stock they can think of, that may be related. While two major transportation ETFs – the iShares Transportation ETF (IYT) and SPDR Transportation Fund (XTN) – maintain exposure to the exact same 44 stocks, the allocation of those stocks lends to different technical pictures.
On the default trend chart, IYT moved back into a positive trend to begin July along with giving a second buy signal off the April lows. The trending improvement brought the fund score of IYT up to 2.76, but below the acceptable 3 score threshold. On the other hand, XTN saw its default trend chart move back into a positive trend in mid-June before continuing on to a fourth buy signal in the latter part of the month. July’s action kicked off with a move from the lower to upper $80s before pulling back from overbought territory early last week. Intraday action Wednesday (7/23) brought the chart of XTN back into a column of Xs at $87. Along with the trend improvement, XTN has shown relative improvement as well with the market RS chart against the S&P 500 Equal Weight Index moving back into a column of Xs, indicating near-term outperformance over the market, following action on 7/10. Given the relative improvement, XTN maintains a 3.78 fund score, a full point higher than IYT. So, what derives the difference between the two?
The difference between technical pictures roots back to the allocations of the ETFs; with IYT taking a cap-weighted approach and XTN taking a more equal weighted approach. As the table below shows, the most notable allocation differences lie in Uber (UBER) and Union Pacific (UNP), which make up 38% of the allocation. XTN’s equal weighted allocation have performed better than IYT off the market’s April lows as the improvement within transportation-related subsectors provided a boost. Those seeking exposure to XTN may look to dollar cost average into a position as the fund’s price consolidates in the mid $80s.
