3 Boring, Reliable Industrials for Retirement

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Aside from utilities, perhaps no sector is as boring as the industrials that make heavy machinery, parts and other durable goods. You can almost set your watch to their cyclical nature. However, for those investors in or near retirement, boring can be good — if not downright great.

smokestack industrial manufacture plant 185

As the “bedrock of America,” most industrials have been churning out stable returns and growing dividends for years. In some cases, for more than a century. That kind of stability is exactly what retirement investors should be looking for when it comes to securing their golden years.

But don’t confuse “boring” with low growth potential.

Industrial stocks have plenty of growth in them. Namely, in the concept of onshoring. With wages rapidly rising in traditional manufacturing hubs in Asia and global energy prices following suit, industrial production in the U.S. is getting its mojo back. And when looking at factors such as shipping and labor costs — as well as supply chain efficiency, taxes and economic incentives — companies are now returning to the U.S. in spades to build their goods.

That’s great news for industrials going forward. And even better news for retirement investors looking for a little stability and regular income.

So, what are some of the best ways to add a dose of industrials for the long haul? Here are three ways — a stock, an exchange-traded fund (ETF) and a mutual fund.

Industrials for Retirement – General Electric (GE)

Industrials for Retirement - General Electric (GE)Type: Stock

When it comes to America’s industrial stocks landscape, General Electric (GE) has to be one of the best choices for individual investors. And it’s even getting better as it returns to its industrial roots.

The venerable industrial manufacturer seems to be leaving the world of finance, distancing itself from GE Capital — it recently spun off Synchrony Financial (SYF) — and getting back into the business of building physical things. By 2016, 75% of GE’s profits will come from the industrial segment.

Providing those profits will be its recent forays into the energy and power segments. GE’s oil & gas business is quickly becoming one of the go-to suppliers in the oil patch, while its $16 billion buy of Alstom’s power and grid businesses gives it a huge presence in the infrastructure markets.

Currently, you can buy GE for just less than 14 times earnings. That doesn’t compare fantastically to expected earnings growth of around 8% over the next few years, but it will help pad GE’s substantial 3.5% dividend yield.

All in all, GE is proving why it’s one of the top industrials to own.

Industrials for Retirement – Vanguard Industrials ETF (VIS)

Industrials for Retirement - Vanguard Industrials ETF (VIS)Type: ETF

For retirement investor looking for broad exposure to industrial stocks, look no further than the Vanguard Industrials ETF (VIS), which offers one of the broadest selections of manufacturing firms.

VIS tracks the MSCI US Investable Market Industrials 25/50 Index, which provides exposure to industrial stocks across large-, mid- and small caps. The fund’s broad coverage of the sector has helped attract nearly $2 billion in assets.

The ETF currently holds more than 353 firms that manufacture & distribute capital goods, provide commercial services and supplies, and provide transportation services. That includes industrials such as the previously mentioned GE, as well as other industry stalwarts like 3M (MMM).

VIS’ has averaged 8.8% returns since its inception in 2005, which beats the S&P 500’s average return by nearly a percentage point — that can in part be attributed to its mid- and small-cap exposure.

And because it’s Vanguard, you know costs will be low. VIS charges a scant 0.14% — or $14 per $10,000 invested annually — in expenses, which is about 85 basis points cheaper than the average sector fund.

Industrials for Retirement – Fidelity Select Industrials Portfolio (FCYIX)

Industrials for Retirement - Fidelity Select Industrials Portfolio (FCYIX)Type: Mutual Fund

Sometimes, active management can produce better returns than just indexing. That’s why if you’re looking for industrials, you might consider the Fidelity Select Industrials Portfolio (FCYIX).

Manager Tobias Welo focuses his attention on industrial stocks that only manufacture, distribute and supply industrial products, services or equipment. He also runs a more concentrated portfolio of just 60 stocks — with the top 10 holdings of this $1.1 billion mutual fund taking up around 43% of assets. Those big bets on a handful of stocks have helped the fund rack up average annual returns of 11.2%, outperforming the S&P 500, as well as the previously mentioned MSCI US Investable Market Industrials 25/50 Index.

The only drawback to the fund is its expenses. And that’s not to say that FCYIX is outrageously expensive, but it does charge 0.81% — certainly much more than you can get from the indexed VIS. Still, its average annual returns actually more than make up for the greater expense.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/industrial-stocks-industrials-retirement-vis-ge-fcyix/.

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