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While the economy is still weak, it is undoubtedly better than it has been in quite some time. Employment levels are slowly rising, Europe appears to have its debt situation temporarily under control, and home prices recently posted a year-over-year gain for the first time in a year and a half, further adding to general consumer optimism.

Thanks to this, broad stock markets have been rising steadily this year pushing indexes like the S&P 500 sharply higher and to gains that usually take at least a year to accumulate. However, while some sensitive market segments have roared higher in this environment, one sector that has failed to rise as well has been the transports (read Three Construction ETFs For An Economic Recovery).

This segment has gained so far this year, but its return is roughly half of what an investor would have experienced in a broad market ETF like SPY during the same time period. In fact, during early March, it appeared as though the transports were poised to fall back into the red on the year before finally gaining some momentum over the next few weeks.

This underperformance is troubling given that many investors feel as though transports can act as a barometer of the broad market. After all, when transports are surging it generally means that more goods are being moved around, people have money to travel, and business activity is up in aggregate.

Since the economy clearly is doing better as of late—albeit slightly—it is puzzling that transports have not rallied along with the broad market too. While this could signal to some investors that the market rally is due for a pause, it could also mean that transports are an intriguing buy in this environment (read Timber ETFs To Benefit From Housing Recovery).

This seems especially true for two reasons, both of which suggest that transports could move higher in the coming days. First, after nearly hitting a 2012 low on March sixth, transports have been on a tear, beating out broad markets in the time frame. Second, and most importantly, the recent rally has been built more on data than on hope.

Home sales are approaching a double digit gain in volume when compared to the previous year, core CPI remains moderate while long term Treasury bond demand remains very strong. Additionally, factory sales are coming in better than expected and Fed surveys are coming in ahead of expectations, suggesting that there is rising demand for the movement of goods across many sectors of the economy (see Three ETFs With Incredible Diversification).

In light of this, it may be the time to make an allocation to the broad sector in hopes that the recent trend in the space will continue and that the highly sensitive sector will keep on displaying strong momentum. To accomplish this task in basket form, investors should look to either of the transport ETFs that we have highlighted below.

While they have a similar focus, there are actually some key differences that investors should be aware of before making a choice in this space. There are several top holdings similarities, but there are marked differences between the two funds and their expense ratios, number of holdings, and volumes, factors that are crucial to any investor seeking to make a play on this overlooked corner of the market:

iShares Dow Jones Transportation Average Fund (IYT - ETF report)

The most popular ETF in the space is the nearly nine year old IYT from iShares. The fund tracks the Dow Jones Transportation Average Index which is a benchmark containing roughly 21 securities. Volume and AUM are both impressive, ensuring that the product has tight bid ask spreads for virtually all investors. Despite this, the product does have a relatively high expense ratio, coming in at 47 basis points a year (see Are Telecom ETFs In Trouble?).

The ETF is heavily exposed to the railroad and trucking industry as this segment makes up nearly half of the portfolio. Air freight and logistics comes in second, accounting for roughly 30% of exposure while airlines come in third at about 12% of the total. In terms of market capitalization levels, large caps make up about half the fund while mid and small caps account for the rest.

Top holdings include railroad operator Union Pacific (UNP - Analyst Report) at roughly 11.8% of assets while two logistic firms—FedEx (FDX - Analyst Report) and United Parcel Service (UPS - Analyst Report)—take the next two spots making up nearly 18% of the total assets between them. In terms of the rest of the top ten, there is one more logistics firm, a marine company and the rest are in the railroad & trucking segments.

SPDR S&P Transportation ETF (XTN - ETF report)

The newcomer in the space, XTN, debuted a little over a year ago, tracking the S&P Transportation Select Industry Index. With this focus, the fund holds roughly 40 securities in its basket charging investors just 35 basis points in fees. However, thanks to the youth of the fund, the volume hasn’t followed; the ETF sees volume of just under 6,000 shares a day (read Five Cheaper ETFs You Probably Overlooked).

This fund is also heavily exposed to railroads and trucking as they make up roughly 53% of the total. Beyond this, close to 20% of the total goes to both airlines and logistic companies, which pretty much round out the entire fund except for a 6% allocation to marine firms. The real difference appears to be in terms of market cap levels as this product is heavily focused on small and mid cap securities; large caps only account for 20% of the fund’s total.

In terms of individual holdings, a vastly different picture results for investors. The product doesn’t put more than 3.5% into any one security, a sharp contrast from its iShares counterpart. Additionally, investors should note that XTN includes a number of car rental companies, which are excluded entirely from IYT.

With this focus, the top holdings in XTN include US Airways Group (LCC), Swift Transportation (SWFT), and Con-Way Inc (CNW). This results in a top ten holdings that has six railroad & trucking firms, three airlines, and one logistic company, giving the product just over one-third of its assets in this group.

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