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Should You Invest in the Industrial Select Sector SPDR ETF (XLI)?

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Launched on 12/16/1998, the Industrial Select Sector SPDR ETF (XLI - Free Report) is a passively managed exchange traded fund designed to provide a broad exposure to the Industrials - Broad segment of the equity market.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Industrials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 11, placing it in bottom 31%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $18.26 billion, making it the largest ETF attempting to match the performance of the Industrials - Broad segment of the equity market. XLI seeks to match the performance of the Industrial Select Sector Index before fees and expenses.

The Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.12%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.24%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Industrials sector--about 99.50% of the portfolio.

Looking at individual holdings, Honeywell International Inc. (HON - Free Report) accounts for about 4.91% of total assets, followed by United Parcel Service Inc. Class B (UPS - Free Report) and Union Pacific Corporation (UNP - Free Report) .

The top 10 holdings account for about 37.69% of total assets under management.

Performance and Risk

The ETF has added roughly 21.89% and it's up approximately 33.55% so far this year and in the past one year (as of 10/27/2021), respectively. XLI has traded between $74.87 and $105.53 during this last 52-week period.

The ETF has a beta of 1.19 and standard deviation of 26.62% for the trailing three-year period, making it a medium risk choice in the space. With about 77 holdings, it effectively diversifies company-specific risk.

Alternatives

Industrial Select Sector SPDR ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLI is a great option for investors seeking exposure to the Industrials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

First Trust IndustrialsProducer Durables AlphaDEX ETF (FXR - Free Report) tracks StrataQuant Industrials Index and the Vanguard Industrials ETF (VIS - Free Report) tracks MSCI US Investable Market Industrials 25/50 Index. First Trust IndustrialsProducer Durables AlphaDEX ETF has $1.82 billion in assets, Vanguard Industrials ETF has $5.44 billion. FXR has an expense ratio of 0.64% and VIS charges 0.10%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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