Top Ranked PowerShares Dynamic Industrials Sector Portfolio ETF In Focus (PRN)
Eric Dutram: Industrial sector ETFs are a way to gauge the overall health of the broader economy. This sector is basically a cluster of all the cyclical and economically sensitive companies.
These firms are principally engaged in the business of providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense and general manufacturing products and services.
The Industrial sector is the most impacted during times of global economic turmoil attributable to low demand for industrial goods. Though the global economy is still under pressure, U.S. seems poised for some growth which has positively impacted the Industrial sector. Recent data also confirms that industrial production is moving higher at a brisk pace, enhanced by solid levels of manufacturing, mining and utilities productivity.
With recovering employment levels and rising consumer spending on durables, this sector is expected to deliver modest growth for the rest of the year, and into 2013 as well. However, European woes and low export demand for industrial goods are persistent concerns that may impede sector growth (Inside the Dow Jones Industrial Average ETF (DIA)).
Keeping in mind the broad issues related to the sector we would like to highlight the top rated fund in the space. Investors seeking to invest in this corner of the market can look to put in their money in PowerShares Dynamic Industrials Sector Portfolio (PRN). PRN has been a #1 Zacks ETF Rank (Strong Buy) fund in the space. We expect this ETF to outperform its peers in the next one year period.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium, or High.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio in the U.S. industrial market, we have taken a closer look at the top ranked PRN below:
PowerShares Dynamic Industrials Sector Portfolio (NYSEARCA:PRN)
Launched in October 2006, PRN seeks to match the price and yield of the Dynamic Industrials Sector Intellidex Index. The Index is comprised of stocks of 60 U.S. industrial companies.
These are companies that are principally engaged in the business of providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense and general manufacturing.
PRN manages an asset base of $27 million and appears to be less liquid than its peers, trading with low volume levels on a regular basis. PRN invests its asset base in a holding of 60 industrial companies.
PRN seeks to provide exposure to almost all segments of the industrial sector with double-digit allocation in Aerospace & Defense, Airlines, Commercial Services & Supplies and Electrical Equipment.
The fund allocates its asset base almost equally across the different market spectrum with the top priority being small caps, closely followed by large caps and then finally mid cap stocks.
Among individual holdings, the fund does not appear to be concentrated as just 24% of the asset base goes towards its top 10 holdings. Among the top ten, Aerospace & Defense companies dominate the holding pattern with four firms in the list. Delta Airlines, Equifax and L-3 Communication Holdings occupy the top three positions in the fund.
The fund has been a good performer in the last one year, delivering a return of 16%. PRN appears to be a bit expensive charging an expense ratio of 65 basis points annually while delivering a yield of 1.34% in the process (12 Ways to Earn High Yields with ETFs).
Still, the fund could have a solid performance ahead if the economy continues to improve. For this reason, we look for this undervalued ETF to have a strong 2013 and be a solid industrial ETF choice for many investors.
In 1978, Len Zacks discovered the power of earnings estimates revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank, a peerless stock rating system whose Strong Buy recommendation has an average return of 26% per year.