With the benefit of hindsight, the 1980s was a good decade to be a young adult. As a child, I remember very little about the politically charged 60s and the social revolution that marked that decade. During the 1970s, I was a wonderfully out of touch adolescent without the influences of cable television and FM radio. As I became more aware of the world around me in the early 1980s, disco sounds of the Bee Gee’s and disaster movies like The Towering Inferno (Paul Newman and George Kennedy were much better together in Cool Hand Luke, a late 60s classic and social statement) were fading. Alternative music born across the pond in the UK and movies of a lighter fare began to take hold in the US.
Believe it not, a recent article in the Wall Street Journal prompted these thoughts of the 80s, the music and the movies behind the decade. One of my favorite writer/producers was John Hughes. While having many movies to his credit, Mr. Hughes was responsible for writing and producing classic teenage cult movies like Ferris Bueller’s Day Off and The Breakfast Club along with the comedies Home Alone and Planes, Trains and Automobiles. The latter was silly at best but starred two of my favorite comedic actors and gave me license to address an investment topic with a bit of nostalgia.
John Candy and Steve Martin are certainly not considered leading indicators of stock markets. On the other hand, Planes, Trains and Automobiles (or in this case, Trucks) are the underpinnings of The Dow Jones Transportation Index (DJTI). Investors follow this index because it includes freight carriers along with airlines and shippers that many consider bellwethers for economic growth. During the last half of March, the index entered bull-market territory and has risen 22% since January 20th. For comparison, the Dow Jones Industrial Average (DJIA) has increased 12% over the same period. Fueling this DJTI increase is improving data on freight moving through ports, airlines, railroads and trucking companies.
Starting in December 2014 and continuing in to the 1st quarter of 2016, the Guggenheim S&P 500 Equal Weight Industrials Exchange Traded Fund (ETF), ticker symbol RGI, has been a small investment holding in most portfolios. Averaging around 1.5% of a portfolio’s total value, RGI has provided exposure to a specific sector of the economy that historically does well in advance of a growing economy and strong job market. Sticking with the Planes, Trains and Automobiles (or in this case, Trucks) theme, RGI holds such companies as FedEx, Norfolk Southern, Caterpillar, UPS, Northrop Grumman, Boeing and Delta Air Lines. Expanding beyond transports, RGI also holds many well-known industrial and manufacturing companies like 3M, Emerson Electric and GE.
For the sake of fairness and to reinforce the cyclical nature of transports and other sectors of the economy, the Dow Transportation Average dropped 16.7% in 2015. Industrials, which are also a component of RGI, were off 2.5%. These were offset (not in RGI but in other parts of client portfolios) by Technology, up 5.9% and Healthcare, which was up 6.9% in 2015. These are just a few of the sectors that make up the market but these differences and the non-correlated nature of individual sectors in any given year, validates the importance of diversification and supports the notion that investors should not attempt to time the market.
As long as indicators suggest the US economy will continue to grow and it is supported by a strong job market, RGI will remain a small component of portfolios. Its holdings, and the relatively wide swath of the US economic engine they represent, provide important exposure to critical sectors in an expanding US and global economy. So instead of getting anxious or impatient the next time you look up in the sky and see a plane, or sit at a RR crossing waiting for a train or jockey for position on the interstate with a long haul carrier, think about RGI. Consider all the goods that are being manufactured and shipped across the great expanse of the United States and the world and how you just might be profiting from that commerce related transportation.