Through the Industrial Select Sector SPDR Fund (XLI), investors are able to gain exposure to the US industrial sector, which includes industries such as aerospace and defense, machinery, transportation, and construction.
Launched in December 1998, the fund currently holds 78 stocks. The XLI aims to track the Industrial Select Sector Index, which, in turn, seeks to provide an effective representation of the industrial sector of the S&P 500 Index.
The XLI includes some of the largest and most influential industrial companies in the United States.
The industrial sector plays a critical role in supporting economic growth, particularly during periods of expansion and infrastructure investment. XLI offers investors a diverse portfolio of leading industrial firms, including Honeywell, Union Pacific, and GE Aerospace, making it a popular choice for those seeking to capitalise on the performance of this key sector.
As of end November 2024, the Industrial Select Sector SPDR Fund's assets under management were $22.21 billion.
Industrial Stocks Forecast
The industrial sector is influenced by global economic conditions, government policies, and trends in manufacturing and infrastructure development. As a result, opinions on the outlook for the sector will differ.
Bull Argument: According to Fitch's US Industrials and Capital Good 2025 report, the outlook remains neutral, unchanged from 2025. The firm said that while business conditions vary across end markets, they generally remain healthy, with inflation below previous levels. “Long-term secular trends around the energy transition and digitization remain in place, with the pace of demand subject to the timing of funding and permitting,” wrote the firm.
Overall, US infrastructure spending and the reshoring of manufacturing are key drivers for the market, while defence spending is also expected to remain robust, benefitting aerospace and defence companies. Additionally, the rise of automation and investments in renewable energy infrastructure are likely to provide long-term growth opportunities for industrial firms.
Bear Argument: Fitch did provide some potential headwinds to watch out for. They stated that a higher interest rate environment represents a risk and that weakness in some end-markets, such as agricultural equipment and warehouse automation, reflects declines from cyclically high levels and could remain lower in 2025.
Meanwhile, Brian Bernard, director of industrials equity research for Morningstar, said in a recent report that many industrial stocks are overvalued. Overall, when assessing the bear case for industrial stocks, investors should be aware of concerns about a potential economic slowdown and its impact on demand for industrial products.
Our View: The Industrial Select Sector SPDR Fund provides a cost-effective and diversified way to gain exposure to the industrial sector. With its focus on market leaders across key industries, XLI is well-positioned to perform well during economic growth and increased infrastructure investment. However, investors should be mindful of the sector’s sensitivity to economic cycles and external risks.
Industrial Select Sector SPDR Fund Performance & Price Chart
As you may already know, the performance of the industrial sector is closely tied to the broader economic cycle, with companies benefiting during periods of economic expansion due to industrial investment and suffering during slowdowns. XLI’s performance reflects these trends, delivering strong returns during growth cycles while being vulnerable to economic downturns.
| Year | Performance |
|---|---|
| 2024 (YTD) | +27.55% |
| 2023 | +18.13% |
| 2022 | -5.58% |
| 2021 | +21.09% |
| 2020 | +10.96% |
XLI Top Holdings (as of November 27, 2024)
| Company | Weight |
|---|---|
| GE Aerospace | 4.46% |
| Caterpillar | 4.46% |
| RTX Corp | 3.65% |
| Uber Technologies | 3.43% |
| Honeywell International | 3.41% |
| Union Pacific Corp | 3.40% |
| Eaton Corp | 3.37% |
| Automatic Data Processing | 2.85% |
| Deere & Co | 2.72% |
| Lockheed Martin | 2.54% |
Who Should Buy the Industrial Select Sector SPDR Fund?
XLI is a suitable choice for investors looking to benefit from economic expansion and increased infrastructure spending, as well as those seeking exposure to industrial leaders in aerospace, transportation, and construction. For example, the industrial sector is often a direct beneficiary of government infrastructure initiatives and corporate investments in capital projects, making XLI a good choice for those aiming to capitalise on these trends.
Meanwhile, the fund is a solid choice for long-term investors who are comfortable with cyclical sector performance.
Growth-oriented investors may also find the fund attractive as the rise of automation, renewable energy infrastructure, and the reshoring of manufacturing creates opportunities for the industrial sector to innovate and expand, providing growth potential for XLI’s underlying holdings.
Income-focused investors may prefer other assets. While some industrial companies pay dividends, the yield may not be as attractive as in sectors like real estate or utilities. You can see a separate guide to some of the best dividend paying ETFs.
