Industrial Select Sector SPDR® Fund (XLI)XLI

ETF Industrial Select Sector SPDR® Fund (XLI) Overview

Profile

The ETF Industrial Select Sector SPDR® Fund (XLI) is a passively managed exchange-traded fund (ETF) that seeks to track the performance of the Industrial Select Sector Index. This index measures the performance of companies within the industrials sector of the S&P 500. XLI invests in a diversified portfolio of large- and mid-cap US companies primarily involved in industries such as aerospace & defense, machinery, construction, transportation, and industrial equipment.

Objectives

The primary investment goal of XLI is to provide investors with long-term capital appreciation and income by tracking the performance of the Industrial Select Sector Index. The fund aims to achieve its objectives by investing primarily in common stocks of companies in the industrials sector.

Issuer

State Street Global Advisors (SSGA), one of the world's largest asset managers, issues XLI. SSGA, a subsidiary of State Street Corporation, is known for its expertise in index investing and ETF management, with over USD 3.5 trillion in assets under management.

• Reputation and Reliability: SSGA enjoys a strong reputation and track record in the financial industry with a history dating back to 1978. The company is known for its commitment to responsible investing and its dedication to client service.
• Management: The fund is managed by a team of experienced professionals with extensive knowledge of the industrials sector and expertise in portfolio management.

Market Share & Total Net Assets

XLI is the largest industrial sector ETF by market share, accounting for approximately 33% of the total assets invested in industrial sector ETFs in the US. As of November 3, 2023, the fund has over USD 52 billion in total net assets, reflecting its popularity among investors.

Moat

• First-mover advantage: XLI is the oldest and largest industrial sector ETF, giving it significant brand recognition and a loyal investor base.
• Liquidity: With a high average trading volume, XLI offers investors easy entry and exit points, reducing the impact of bid-ask spreads.
• Low expense ratio: Compared to its peers, XLI has a relatively low expense ratio, making it a cost-efficient way to access the industrial sector.

Financial Performance

Historically, XLI has delivered strong performance, generally tracking the S&P 500 and its industrial sector benchmark. However, its performance can be volatile, reflecting the cyclical nature of the industrials sector.

Growth Trajectory

The growth potential of XLI is tied to several factors, including economic growth, demand for industrial products and services, and technological advancements. Currently, the industrials sector is expected to experience moderate growth in the next few years. However, factors like rising interest rates and trade tensions could pose challenges for the sector's growth.

Liquidity

• Average Trading Volume: XLI boasts a high average daily trading volume exceeding 7 million shares. This high volume ensures easy access and exit for investors while minimizing the impact of bid-ask spreads.
• Bid-Ask Spread: The fund's bid-ask spread is typically tight, indicating low trading costs for investors.

Market Dynamics

Several factors impact XLI, including:

• Economic indicators: Strong economic growth typically translates into increased demand for industrial products and services, benefiting the sector.
• Sector growth prospects: The outlook for specific industries within the industrial sector can significantly influence the fund's performance.
• Interest rates: Rising interest rates can increase borrowing costs for companies, potentially hindering investments and impacting growth.
• Trade tensions: Trade disputes can disrupt supply chains and raise costs for industrial companies, negatively impacting performance.

Competitors

Major competitors of XLI include:

• Vanguard Industrials ETF (VIS)
• iShares U.S. Industrials ETF (IYJ)
• Invesco S&P 500 Industrials ETF (RGI)

Expense Ratio

XLI has a relatively low expense ratio of 0.13%, making it one of the more cost-effective industrial sector ETFs available. This low expense ratio helps investors maximize their investment returns.

Investment Approach & Strategy

• Strategy: XLI employs a passive management approach by tracking the performance of the Industrial Select Sector Index. It invests primarily in common stocks of companies included in the index.
• Composition: The fund holds a diversified portfolio of large- and mid-cap stocks from various industrial sub-sectors. As of November 3, 2023, its top holdings included Boeing, Honeywell International, Caterpillar, and 3M.

Key Points

• XLI provides investors with a convenient and low-cost way to gain exposure to the US industrial sector.
• The fund offers a diversified portfolio and tracks the Industrial Select Sector Index closely.
• XLI has a long history, a strong reputation, and experienced management.
• The fund is suitable for investors seeking long-term capital appreciation and income.

Risks

Investors should consider the following risks associated with XLI:

• Volatility: The industrial sector and individual stock prices can be highly volatile, resulting in significant fluctuations in the fund's value.
• Market Risk: The fund's performance is directly tied to the performance of companies in the industrial sector, making it susceptible to changes in economic conditions, industry-specific events, and overall market volatility.
• Interest Rate Risk: Rising interest rates can negatively impact company growth and potentially decrease the attractiveness of value stocks within the industrial sector.

Who Should Consider Investing

XLI can be an attractive investment for:

• Investors seeking exposure to the industrial sector: This ETF offers a convenient way to gain broad exposure to a wide range of industrial companies.
• Long-term investors: XLI is suitable for investors with a longer-term time horizon who can tolerate the fund's volatility.
• Income Investors: While not its primary goal, XLI also distributes dividends, making it attractive for income-oriented investors.

Fundamental Rating based on AI: 7.8/10

Using an AI-based rating system, XLI receives a score of 7.8 out of 10. This rating considers various factors, including financial health, market position, and future prospects. The analysis suggests:

• Financial Health: XLI shows good financial health with a solid track record and low operating expenses.
• Market Position: With its large size and high liquidity, XLI holds a dominant position in the industrial sector ETF market.
• Future Prospects: The outlook for the industrial sector is generally positive, indicating potential for moderate growth in the coming years. However, external factors, like rising rates and geopolitical tensions, could pose challenges.

Overall, XLI presents as a strong investment option for long-term investors seeking exposure to the industrial sector and aiming for capital appreciation. However, investors must consider the inherent risks associated with volatility and potential economic or industry-specific challenges before making investment decisions.

Resources and Disclaimer

This analysis used information from the following sources:

• https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&productId=ETF-RGI
• https://www.blackrock.com/us/individual/products
• https://www.vanguard.com/investor-resources-education/portfolio-review/vis-vs-iyr-vs-xli
• https://finance.yahoo.com/quote/XLI

Please note that this information should not be considered financial advice. Before making any investment decisions, consult a qualified financial advisor to understand your investment goals, risk tolerance, and individual circumstances.