ETFs That Track the Dow Jones Transportation Average

What you get when you buy a transportation index ETF

An ETF that tracks the Dow Jones Transportation Average holds shares in the 20 companies that make up that index. When you buy one share of the ETF, you own a tiny piece of all 20 stocks at once — railroads, airlines, trucking companies, and shipping firms. The ETF's price moves up and down with the average price of those 20 stocks, minus a small annual fee.

The Dow Jones Transportation Average is one of the oldest stock indexes in the United States. It includes companies like Union Pacific, Delta Air Lines, FedEx, and J.B. Hunt Transport Services. Because these companies move goods and people across the country, their combined performance is often seen as a signal of economic health — if transportation companies are doing well, the theory goes, the broader economy is probably growing.

You do not have to pick which transportation stocks to buy. The ETF does that for you, and it rebalances automatically when the index changes. You pay one annual fee (called an expense ratio) instead of paying a commission on each individual stock purchase.

Key Takeaways

• Transportation index ETFs hold all 20 stocks in the Dow Jones Transportation Average, so you own a diversified slice of the sector with a single purchase.
• The expense ratio — the annual fee charged by the ETF — typically ranges from 0.40% to 0.70% depending on which fund you choose.
• IYT (iShares Transportation Average ETF) and XTN (Invesco Transportation ETF) are the two most widely traded options, with IYT holding more assets overall.
• Transportation stocks tend to move with economic cycles, so these ETFs may fall sharply during recessions and rise during periods of growth.
• You can buy and sell shares during market hours just like individual stocks, and you can hold them in any brokerage account.

The two main transportation index ETFs and how they differ

IYT (iShares Transportation Average ETF) is the larger of the two main options, with more than $3 billion in assets. It tracks the Dow Jones Transportation Average exactly, holding all 20 stocks in the same weights as the index. The expense ratio is 0.40% per year, meaning you pay $40 annually for every $10,000 you invest.

XTN (Invesco Transportation ETF) also tracks the Dow Jones Transportation Average and holds the same 20 stocks. Its expense ratio is 0.70% per year. Because IYT charges less and has more trading volume, it is usually the more practical choice for most investors, though both funds track the same index and will perform nearly identically.

A third option, IYT's competitor from Vanguard (VGM), does not exist — Vanguard does not currently offer a dedicated Dow Jones Transportation Average ETF. If you want to own transportation stocks through Vanguard, you would need to buy individual stocks or choose a broader transportation sector fund that is not tied to this specific index.

How transportation stocks behave during economic cycles

Transportation companies are sensitive to economic growth. When businesses are shipping more goods and people are traveling more, transportation stocks tend to rise. When the economy slows, freight volumes drop, airlines cut flights, and these stocks often fall faster than the broader market.

This means a transportation index ETF can be more volatile than a fund tracking the overall stock market. During the 2008 financial crisis, transportation stocks fell sharply. During the recovery that followed, they rebounded strongly. In 2020, when COVID-19 shut down travel, airline stocks in the index dropped significantly, though freight and rail companies held up better.

If you are building a diversified portfolio, a transportation ETF works best as one piece alongside funds that track other sectors or the overall market. It is not a substitute for broad diversification, but rather a way to take a larger bet on economic growth if you believe the economy will expand.

Costs and tax considerations

The expense ratio is the main cost you will see. IYT charges 0.40% annually, which is reasonable for a specialized sector fund. You pay this fee whether the fund goes up or down, and it is deducted automatically from the fund's value each day.

When you buy and sell shares, you may owe capital gains tax on any profit. If you hold the ETF in a regular taxable brokerage account and the fund rises $1,000, you owe tax on that $1,000 gain when you sell. If you hold it in a retirement account like an IRA or 401(k), you do not owe tax until you withdraw money in retirement.

The ETF itself distributes dividends from the stocks it holds, usually quarterly. These dividends are taxable in a regular account, though the amount is typically small because transportation stocks do not pay high dividends compared to other sectors.

Who should consider a transportation index ETF

A transportation index ETF makes sense if you believe the economy will grow and want to bet on that growth through a diversified group of transportation stocks. It is simpler than picking individual railroad or airline stocks, and cheaper than paying an advisor to do it for you.

It is less suitable if you need stable, predictable returns or if you are uncomfortable with volatility. Transportation stocks can swing 20% or more in a single year, so this is not a fund for money you might need in the next few years.

It is also not a replacement for owning a broad market index fund. Most financial advisors suggest building a core portfolio with a total market or S&P 500 ETF first, then adding specialized funds like a transportation index ETF if you want to overweight a particular sector.

How to buy a transportation index ETF

You buy transportation index ETFs the same way you buy any ETF: through a brokerage account. Open an account with a broker like Fidelity, Schwab, Vanguard, or any other firm that offers stock and ETF trading. Fund the account, search for the ticker symbol (IYT or XTN), and place a buy order during market hours.

The order executes at the market price, which changes throughout the trading day. You can place a limit order if you want to buy only at a specific price or below. Once the order fills, the shares appear in your account, and you own them until you sell.

Most brokers charge no commission to buy or sell ETFs, though some may charge a small fee for certain funds. Check your broker's fee schedule before opening an account. You can hold the ETF in a regular taxable account, an IRA, a 401(k), or any other account your broker offers.

What happens when the index changes

The Dow Jones Transportation Average is a fixed list of 20 stocks, but occasionally companies are removed and replaced. When that happens, the ETF automatically sells the removed stock and buys the replacement. You do not have to do anything — the fund manager handles it.

These changes are rare. The index has been relatively stable for decades, though occasionally a company goes bankrupt, merges with another firm, or no longer qualifies as a transportation company. When a change occurs, the ETF makes the swap, and you may owe a small capital gains tax if the fund sells a stock at a profit.

Frequently Asked Questions

Can I lose all my money in a transportation index ETF?

No, because the ETF holds 20 different companies. Even if one company goes bankrupt, the other 19 stocks remain. However, you can lose a significant portion of your investment if the economy enters a severe recession and transportation stocks fall sharply. This happened in 2008 and 2020, when transportation stocks dropped 40% or more before recovering.

How often should I check the price of my transportation ETF?

That depends on your goals. If you are holding it for years as part of a long-term portfolio, checking once a month or quarterly is enough. If you are trading in and out frequently, you might check daily. Most investors benefit from checking less often, because frequent checking can lead to emotional decisions based on short-term price swings.

Is a transportation index ETF better than buying individual airline or railroad stocks?

It depends on your skill and time. An ETF spreads your risk across 20 companies, so one bad decision does not hurt as much. Picking individual stocks requires research and carries more risk if you choose poorly. For most investors, the ETF is simpler and safer, though it also means you do not benefit if one stock outperforms the others by a lot.

What is the difference between IYT and XTN?

Both track the same index and hold the same 20 stocks. IYT charges 0.40% annually and has more assets and trading volume, making it the more practical choice. XTN charges 0.70% annually. The performance difference is small, but IYT's lower fee means you keep slightly more of your gains over time.

Can I use a transportation index ETF in a retirement account?

Yes. You can hold IYT, XTN, or any other ETF in a traditional IRA, Roth IRA, 401(k), or other retirement account, depending on what your account provider offers. The tax treatment is the same as any other holding in that account — no tax until you withdraw in retirement (or never, in the case of a Roth).