Best 2020 Industrials ETFs and Mutual Funds

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Industrial stocks include companies that build and distribute machinery, equipment or supplies for use in manufacturing, construction, or defense as well as aerospace, railroads, and waste management. These companies tend to be a strong indicator of supply and demand in the economy and can be good barometers of whether the country is going into a recession or coming out of a recession. This is because they often produce the goods that more retail-like companies (those that sell directly to consumers) need in order to sell finished products to consumers. When the economy contracts, and consumers have less money to buy things, the demand for industrials drops and when there is growth in the economy, the demand for industrial goods grows.

Over the last five years, the industrials sector has slightly outpaced the S&P 500. The thing to keep in mind, however, if you add industrial ETFs or mutual funds to your portfolio is that you will likely experience cyclical returns. This means that returns may be very good for a few years, then poor for a few years. To realize the full benefit, holding industrials over the long term is necessary. Do not try to time this sector and sell in and out based on your thoughts about the economy. Invariably, market timers are wrong. It is better to hold your investments long term as predicting when the economy will come roaring back is often impossible. 

Here is a list of possible ETFs and mutual funds (minimum investment of $10,000 or less) and a market history of at least five years. For reference, the SPDR S&P 500 ETF is included and highlighted green to compare these funds with overall market returns. The ETFs highlighted in yellow are funds that mimic the overall industrials sector (passively managed) and have industry standard weighting. Funds not highlighted are 1) ETFs that are based on a niche index, have an enhanced strategy or are actively managed, or based on none-standard weighting, or 2) are a mutual fund attempting to beat the market sector with various strategies.

Based on the table below most niche indexed, enhanced, and actively managed ETFs and mutual funds under-perform the sector as a whole. Therefore, the recommendation for this sector is to invest in a passively managed, sector fund like the iShares U.S. Industrials ETF. 






Best Sector Index ETFs (least risky)

iShares U.S. Industrials (IYJ) - Recommended

Five Year Return (After Fees): 12.31%
Expense Ratio: 0.42%
Benchmark Index: Dow Jones US Industrials Index 
ETF Type: Passively Managed, Sector Index 


Invesco S&P 500 Equal Weight Industrials (RGI)

Five Year Return (After Fees): 12%
Expense Ratio: 0.40%
Benchmark Index: S&P Equal Weight Industrial Index 
ETF Type: Passively Managed, Sector Index


Best Mutual Funds (more risky)

Fidelity Select Envr and Alt Energy Portfolio (FSLEX)
Invests in alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies or other environmental support services.

Five Year Return (After Fees): 10.69%
Expense Ratio: 0.85%
Benchmark Index: N/A 
ETF Type: N/A 


Fidelity Select Defense and Aerospace Portfolio (FSDAX)
Invests in the more narrow industry of defense and aerospace.

Five Year Return (After Fees): 9.78%
Expense Ratio: 0.75%
Benchmark Index: N/A 
ETF Type: N/A 


Best Enhanced Strategy, Actively Managed, or Niche Index ETFs (more risky)

Invesco DWA Industrials Momentum (PRN)
Uses an enhanced strategy to invest more heavily in companies within the index which it believes has powerful relative strength or momentum characteristics.

Five Year Return (After Fees): 12.03%
Expense Ratio: 0.60%
Benchmark Index: DWA Industrials Technical Leaders index
ETF Type: Enhanced Strategy, Niche Index 


First Trust RBA American Industrial Renaissance (AIRR)
Uses an enhanced strategy to invest more heavily in small and mid cap companies within its benchmark index.

Five Year Return (After Fees): 10.08%
Expense Ratio: 0.70%
Benchmark Index: Richard Bernstein Advisors American Industrial Renaissance Index
ETF Type: Enhanced Strategy, Niche Index 




This information is for educational purposes only and is not a recommendation to buy.

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