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Ride Momentum in Industrial Stocks with a Sector ETF

Increased fund flows into XLI are a sign that this sector is hot


Industrial stocks aren’t generally considered momentum plays, but with the Dow trading at record highs and with money flowing into stocks in the industrial sector, traders continue riding the wave higher in large-cap industrial bellwethers.

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Stalwarts such as General Electric (GE) and Honeywell (HON), as well as industrial transports such as Norfolk Southern (NSC), all have come out recently with strong earnings, and that’s helped one exchange-traded fund (ETF) pegged to the sector make a series of new 52-week highs.

That ETF is the Industrial Select Sector SPDR ETF (XLI), a fund tied to the index of the same name. XLI is a fund that holds 62 industrial giants, including United Technologies (UTX), Union Pacific Corp (UNP) and Boeing (BA), as well as the aforementioned earnings winners.

According to the ETF Channel, the trading capital is flowing into XLI. As of July 19, there was a week-over-week gain of approximately $319 million dollar in fund inflows, which represents a 5.8% increase. This increased fund flow is part of the reason why XLI is breaking out to new highs, but one reason why money is making its way to industrials is due to their improving fundamentals.

As more demand for industrial products of all varieties continues to keep bellwether stocks in the space showing strong earnings beats, we are likely to see more upside for XLI—and that’s a trend traders can take advantage of today.

Buy XLI at the market, as I expect the fund will be about 10-15% higher by the end of the year.

At the time of publication, Jim Woods held no positions in the stocks mentioned.

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