While investor attention this week may likely be focused on the rumored upcoming announcement of a Facebook IPO as well as the developments of a potential Greek debt deal, CFPs and RIAs who are looking to steer their clients toward long-term high-return investments may want to turn their attention toward several under-the-radar transportation ETFs.
For instance, financial news source The Street highlighted the strong performance of transportation ETFs in a February 1 article. In particular, the media outlet chose the strong performance of the iShares Dow Jones Transportation Average Index Fund (IYT), which in the past year has seen its value rise by 6 percent, as an example.
In addition, the source pointed to a number of potential trends that may encourage CFPs and RIAs to monitor developments in this sector. For example, reports from the Association of American Railroads indicated that its member organizations could spend roughly $13 billion improving U.S. rail networks, and difficulties in the Keystone XL oil pipeline's development could be promising for this sector, the news source revealed.
Still, despite short-term gains and an encouraging outlook, CFPs may want to note that the fundamentals of IYT may indicate that it doesn't offer the opportunity for promising returns. With a price-to-book value multiple of 2.1x, data from ETF Research Center suggests that the market may be overvaluing shares of companies in the ETF, resulting in an UNDERWEIGHT recommendation.
However, this overvaluation is not simply affecting IYT. The SPDR S&P Transportation (XTN), another popular industry ETF, has a similar price-to-book value multiple of 2.0x and an UNDERWEIGHT recommendation, meaning that investment professionals may want to advise their clients to consider long-term growth prospects elsewhere or take a closer look at the valuation metrics before selecting either ETF.
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