Author Topic: XLI (Infrastructure ETF) - thoughts?  (Read 2083 times)

montgomery212

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XLI (Infrastructure ETF) - thoughts?
« on: January 17, 2018, 08:15:11 PM »
For those who sector invest --

XLI consists of 60-70 holdings -- highest weight given to Boeing; 3M; CAT. Low expense ratio. It has traditional infrastructure companies like those focused on aggregates like crushed stone/concrete etc. but also lots of railroads, FedEx/UPS, engineering companies. Basically the types of companies that do well overall when businesses are roaring.

What do people think? I was initially looking for an infrastructure play -- something in the aggregates space because I figure if an infrastructure bill passes at some point this year, there will be lots of contracts for highways etc. which can't be built without concrete and asphalt. But now I'm thinking given how this administration does things and how these parties in power don't work together -- if a bill doesn't pass, I'd be putting money into companies that have already run up in price on anticipation. In contrast XLI seems "safer"-- diversification across 60+ holdings but also companies like FedEx/UPS or railroads aren't directly hindered if there is no infrastructure bill because their services are being used right now like crazy by other businesses.

Thoughts? It's already run up a bit -- so IDK if I wait for even a 1-2% dip or just set it and forget it.

montgomery212

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Re: XLI (Infrastructure ETF) - thoughts?
« Reply #1 on: January 17, 2018, 09:03:45 PM »
Trying to figure both of those things out - also why I'm seeking others' input.

haggard

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Re: XLI (Infrastructure ETF) - thoughts?
« Reply #2 on: January 17, 2018, 10:40:15 PM »
As far as infrastructure goes, we have been hammering that for years.   Obama's time actually did a lot as far as infrastructure and such, also the states really made a large push in my region of the country.  Infrastructure will continue to need to be improved, roads and bridges are awful across this country and many continually need improving. 

I'm a huge proponent of Cat right now as many sectors of their business are doing well.  Construction equipment as a whole is doing great and should continue through 2018.   It will quickly decline however if the market goes through a correction, but until that point I don't see it slowing down as an industry.   Many people will be building bigger homes as all of their retirements and investments have grown so well over the last year or too also. 

I'm not a huge fan of 3m but for reasons that have nothing to do with investing.   

I know nothing about Boeing. 

I do like the transportation sector but I think I'm behind on it.  As the economy improves ups/Fedex/LTL companies should all see better revenues. 

I'd be glad to shed more light on the equipment businesss if you have more questions.   It's something I'm much more familiar with

Phenix

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Re: XLI (Infrastructure ETF) - thoughts?
« Reply #3 on: January 18, 2018, 07:54:48 AM »
My thoughts:
In general, when I have an idea about a "play" in the stock market, I stop and tell myself that thousands of other investors have probably had the same thought and acted upon it.
Thousands of analysts (along with computer algorithms) have researched and predicted the probability of infrastructure spending going up in the future and valued the stocks accordingly.

Once I get that through my head, I buy the market instead.

jjcamembert

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Re: XLI (Infrastructure ETF) - thoughts?
« Reply #4 on: January 18, 2018, 02:42:26 PM »
I wouldn't be too excited to add XLI to my portfolio with hopes of over-performing because it's not really that different than any other index. Correlation is 86% with DIA or SPY, and 90% correlated with VTI. So I don't really see a reason to cut out tech and energy (top VTI holdings) in favor of these other companies.

specialkayme

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Re: XLI (Infrastructure ETF) - thoughts?
« Reply #5 on: January 19, 2018, 12:15:00 PM »
I may be missing something here, but I don't see the appeal of an Infrastructure ETF (and if I'm wrong, please let me know where, always happy to learn more).

To me, you fall into one of two categories: you're a speculative investor, or you aren't. If you aren't, and believe the stock market will increase on the whole without reference to one sector or another (or without being able to predict one sector or another), you buy the total stock market index or S&P 500 and be done. If you're a speculative investor, you invest in the specific sector you believe will outperform the market and "bet" your beliefs will come true. If that's the case, buy a sector and don't look back.

An Infrastructure ETF is a hedge between the two, but doesn't really give you the advantages of either. If you're bet is right, you won't perform as well as if you jumped right into the sector you thought would perform well. If you're bet is wrong, you probably won't do bad, but you won't do as well as if you invested in the market overall. True you remove some risk, but you also remove some potential gains. Which defeats the purpose of making a "bet" in the first place.

At least, that's my take on it.

montgomery212

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Re: XLI (Infrastructure ETF) - thoughts?
« Reply #6 on: January 19, 2018, 12:33:20 PM »
I may be missing something here, but I don't see the appeal of an Infrastructure ETF (and if I'm wrong, please let me know where, always happy to learn more).

To me, you fall into one of two categories: you're a speculative investor, or you aren't. If you aren't, and believe the stock market will increase on the whole without reference to one sector or another (or without being able to predict one sector or another), you buy the total stock market index or S&P 500 and be done. If you're a speculative investor, you invest in the specific sector you believe will outperform the market and "bet" your beliefs will come true. If that's the case, buy a sector and don't look back.

An Infrastructure ETF is a hedge between the two, but doesn't really give you the advantages of either. If you're bet is right, you won't perform as well as if you jumped right into the sector you thought would perform well. If you're bet is wrong, you probably won't do bad, but you won't do as well as if you invested in the market overall. True you remove some risk, but you also remove some potential gains. Which defeats the purpose of making a "bet" in the first place.

At least, that's my take on it.

Not seeing your point. It's called an infrastructure ETF bc it includes a bunch of things all of which fall into the industrial sector. So yes -- it's my theory that industrials will outperform the broader market. The same way that certain sectors outperform on a yearly basis. So I was asking for others' views re industrial outperformance. I don't get MMM's obsession with lecturing people that index is the ONLY way. I index MOST of my money and then every year I pick a sector or 2 to outperform -- thus my overall portfolio increases by greater than the S&P bc it is invested in a combo of S&P + sectors. People here act like buying an index consisting of CAT and 3M is like putting your life savings in penny stocks and hoping for the best.
« Last Edit: January 19, 2018, 12:36:13 PM by montgomery212 »

montgomery212

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Re: XLI (Infrastructure ETF) - thoughts?
« Reply #7 on: January 19, 2018, 01:03:21 PM »
Makes sense. I'm focusing on the numbers P/B mostly among others. I'm not just willing to make a bet that infrastructure spending picks up. I mean maybe it does but I don't have a crystal ball, nor do I want this to turn just on the passage of an infrastructure bill because who knows how that process goes or if a bill is even brought.

specialkayme

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Re: XLI (Infrastructure ETF) - thoughts?
« Reply #8 on: January 19, 2018, 08:41:07 PM »
Not seeing your point.

Lets see if I can put it another way.

Your first point was:

I was initially looking for an infrastructure play -- something in the aggregates space because I figure if an infrastructure bill passes at some point this year, there will be lots of contracts for highways etc. which can't be built without concrete and asphalt.

So, you have the choice of investing in the entire market, or a particular sector. Not saying one is good while another is bad, but those are the choices. Choose broad, or choose narrow.

So IF you choose to go narrow, you've indicated you believe the aggregates may perform well, and you'll get a nice return.

And yet, you then go in a different direction:

In contrast XLI seems "safer"-- diversification across 60+ holdings but also companies like FedEx/UPS or railroads aren't directly hindered if there is no infrastructure bill because their services are being used right now like crazy by other businesses.

So lets say your original bet is right. An infrastructure bill is passed, and aggregates go crazy. If you went with XLI, will you benefit? Sure. But the "diversified" portion of XLI will drag down your gains. FedEx/UPS, Boeing, 3M will probably still do good, but probably less than the aggregates portion, and probably closer to market average. So your bet was positive, but you didn't really cash in on your bet.

Instead, lets say your original bet is wrong. Infrastructure doesn't really change. Aggregates remain stagnant. FedEx/UPS, Boeing & 3M will still be doing good, probably market average (or a little better). But the drain on the aggregates side cuts your gains down. So you still don't accomplish what you're looking for.

Going with XLI over a straight aggregates play adds some risk protection in the event you're wrong. But that risk protection comes at the price of reduced gains. So in a way, you're betting on yourself being wrong. Kinda defeats the purpose, no?

Go broad or go narrow. If you go narrow, then do just that: go narrow. Don't select a "diversified" ETF. That isn't going narrow.