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The Best Sector ETF to Buy in December 2022

The industrial sector is expected to see strong demand over the upcoming years. Given the sector’s solid growth prospects, the Industrial Select Sector SPDR Fund (XLI) could be a solid buy this month. Read on…

While concerns over interest rate hikes and the consequent economic slowdown linger, optimism is still evident in the industrial sector. Due to restored manufacturing, industrial demand is predicted to remain strong in the coming years.

The Industrial Select Sector SPDR Fund (XLI) offers exposure to the U.S. industrial sector. The sector includes transportation firms, providers of commercial and professional services, and manufacturers of capital goods. The ETF allows investors to take strategic or tactical positions at a more targeted level than traditional style-based investing.

Tracking the S&P Industrial Select Sector, the non-diversified fund generally invests at least 95% of its total assets in the securities comprising the index. It has gained 14.9% over the past six months and 9.7% over the past three months to close its last trading session at $100.96.

Here are the factors that could influence XLI’s performance in the near term:

Fund Stats

As of December 13, XLI had a NAV of $101.14 and about $14 billion in assets under management. It has a gross expense ratio of 0.10%, which is significantly lower than the industry average of 0.45%.

XLI’s trailing-12-month dividend of $1.52 yields 1.51% on the current share price. This compares to its four-year average yield of 1.71%. Its dividend payouts have increased at a 2.9% CAGR over the past five years.

Over the past three years, its net inflow came in at $418.17 million. Its net inflows were $36.61 million over the past five days. It has a five-year beta of 1.15.

Top Holdings

As of December 13, the fund’s top holdings include Raytheon Technologies Corporation (RTX), with a 5.11% weight, Honeywell International Inc. (HON), with a 5.02% weight, Union Pacific Corporation (UNP), with a 4.72% weight, United Parcel Service, Inc. (UPS), with a 4.66% weight, and Caterpillar Inc. (CAT), with a 4.31% weight.

POWR Ratings Reflect Promising Prospects

XLI’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

XLI has a Trade, Buy & Hold, and Peer grade of A. In the 36-fund Industrials Equities ETFs group, it is ranked #1. The group is rated B.

Click here to see the POWR Ratings for XLI.

View all the top ETFs in the Industrials Equities ETFs group here.

Bottom Line

The industrial sector is expected to remain buoyed due to growing manufacturing in the near future. Given the strong fund stats and attractive dividend payments, the ETF might be a solid buy now for investors looking for a targeted industrial sector play.

How Does Industrial Select Sector SPDR Fund (XLI) Stack up Against Its Peers?

While XLI has an overall POWR Rating of A, one might consider looking at its peers, iShares U.S. Aerospace & Defense ETF (ITA) and Global X U.S. Infrastructure Development ETF (PAVE), which also have an overall A (Strong Buy) rating.

XLI shares were trading at $99.08 per share on Thursday morning, down $1.88 (-1.86%). Year-to-date, XLI has declined -5.18%, versus a -16.66% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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