iShares Dow Jones Transport. Avg. (ETF) (IYT)

A Mixed Trade in Transports
Transports have provided a safe haven for investors with the iShares Dow Transports (IYT) registering a small gain over the past year in spite of a meltdown in financials and sharp losses in the overall market averages. The gains in the Dow Transport ETF were largely the result of strong performance by the top four U.S.-based railroads by market cap which I wrote about yesterday as a bullish trade, accounting for over 30% of the stock holdings for IYT.

As evidence of increased commercial interest and product development of globally-focused transport ETFs among major providers, the following ideas have recently been either launched or filed: Claymore/Delta Global Shipping (*launched 8/25/08) (SEA), PowerShares Global Transportation (filed with SEC), and SPDR Transportation (filed with SEC). I think the increased interest by investors in transports warrants commercial development of focused ETFs in the following segments on a global basis:

1.) Railroad: A bullish segment due to pricing power as a result of limited ability to add capacity and increased demand for fuel efficient transport of energy and agricultural commodities. In addition to the four top U.S. railroads I outlined yesterday, investors should also consider Canadian National Railway (CNI), which is actually down nearly 6% over the past year compared to gains for its major competitors here in the states.

2.) Maritime: There is now an ETF for investors and traders as of the 8/25/08 launch of Claymore/Delta Global Shipping (SEA) with the Baltic Dry Index down 42.8% over the past year on concerns of a global slowdown and previous run-up which proved to be unsustainable.

3.) Short Airline: Although the industry is getting a lift from falling oil prices and presents an excellent trading vehicle due to high volatility, Southwest Airlines (LUV) is the leading company and only long-term investment vehicle I would consider as a hedge to an overall short position.

4.) Short Trucking: The top five companies by market cap in the trucking, air freight, and ground delivery segment account for over 50% of the entire global index of 49 companies with market caps over $250M US Dollars which have posted a loss over 20% in the past year on a market cap-weighted basis. As a long position and hedge to a short on the overall segment, I would consider Ryder System (R) as a long-term investment in this group based on its truck rental/leasing and supply chain management business model.

Posted by Mike Havrilla at 6:43 AM 0 Comments
Sunday, September 14, 2008
Ride the Rails to Profits with Warren Buffett
Global Railroad Index Stats & Top 5 Companies by Market Cap

Railroad companies represent a compelling investment theme despite the run-up in the stock prices of major U.S. players in the industry such as Warren Buffett favorite Burlington Northern Santa Fe (BNI), which Berkshire Hathaway owns nearly 64 million shares for an 18% stake. Railroad companies have pricing power as increased demand for the fuel-efficient transport of energy and agricultural commodities is combined with limited near-term ability to increase rail transport capacity due to the labor and capital intensive nature of the business.

As illustrated in the accompanying tables, the performance of the Global Railroad Index was driven primarily by the four domestic rail giants (Union Pacific, Burlington Northern, Norfolk Southern, and CSX), resulting in a 13.6% market cap-weighted gain for the 37-company index versus a slight loss of 0.6% on an equal-weight basis over the past year. The index includes companies over $200 million market caps which are involved in rail transport, infrastructure, and railcar/locomotive manufacturing. The four major domestic rail companies also comprise over 30% of the stock holdings in the iShares Dow Transports ETF (IYT), reflecting both the growing importance of rail transport to our economy and the rise in the stock prices of these companies.