As healthy economic growth in Asia and signs of slow growth in most of the rest of the world have pushed the International Monetary Fund (IMF) to upgrade its global growth forecast to 4.6% for 2010, the transportation sector may be positioned to reap the benefits.
In general, the transportation sector moves in tandem with the overall global economy. As economies grow, more goods are demanded and the need to transport these goods increases.
A factor that supports growth in the transportation sector is the recent uptick in US manufacturing activity. In July of this year, US manufacturing grew at its fastest pace in nearly a year. In fact, overall output of factories, mines and utilities rose 1% in July after witnessing a slowdown in the month before.
Lastly, the recent activity in the Baltic Dry Index, which is the rate it costs to move goods around the sea by cargo ship, indicates that an upward trend is in the making for the sector. Generally, as global economies grow, demand for dry bulk, which includes such things as food, grains, steel, coal and building materials, follows. In fact, the BDI is up nearly 48% from its July 2010 low.
Some ways to play transportation include:
- iShares Dow Jones Transportation Average (IYT), which is a diversified play that allocates 27.5% of its assets to railroads, 24.28% to delivery services, 21.76% to trucking and 9.57% to marine transportation.
- PowerShares Global Progressive Transportation Portfolio (PTRP), whose holdings include global companies engaged in businesses that are seeking to transition toward using cleaner, less costly and more efficient means of transportation.
- Claymore/Delta Global Shipping (SEA), which includes companies that derive at least 80% of their revenues from operating or leasing ships or from the transportation of goods
Although an opportunity appears to exist in transportation ETFs, it is equally important to keep in mind the inherent risks that are involved with investing in such equities. For this reason, it is important to have an exit strategy. Such a strategy can be found at www.SmartStops.net.
Disclosure: No Positions