Stock market investors have a lot to cheer as 2024 comes to a close. The S&P500 index has returned a fantastic 27% so far in 2024, while the Dow Jones Industrial Average is up a solid 17% in a resilient macroeconomic environment.
After the American presidential elections, the market is building up optimism that the economy can continue to gain strength. The new Trump administration’s proposed policies are expected to support US business growth and domestic manufacturing as new market tailwinds.
One exchange-traded fund (ETF) that is well positioned to benefit from this dynamic is it First Trust RBA American Industrial Renaissance ETF(NASDAQ: AIRR). The fund is up 42% year to date, crushing the S&P 500 and the Dow Jones with a unique strategy. Let’s take a look at how the AIRR ETF stands out and why this rally could continue into 2025.
Investors have access to a wide range of ETFs, which provide easy exposure to diversified baskets of stocks and other assets. While the First Trust RBA American Industrial Renaissance ETF may not be a household name, this $2.9 billion fund deserves further investigation.
AIRR passively tracks an index that measures the performance of small and mid-sized U.S. companies in the industrial and community banking sectors. The ‘renaissance’ theme reflects AIRR’s investment philosophy which focuses on manufacturing companies that primarily serve and cater to the domestic market.
Image source: Getty Images.
Companies with local manufacturing facilities can benefit from distinct U.S. advantages over foreign competitors, including a highly skilled workforce, pro-business policies and access to advanced technology to deliver quality products. The fund’s smaller banking sector component recognizes that regional financial institutions often maintain close relationships with these capital-intensive producers, while leveraging similar growth engines.
According to the fund methodology, companies eligible for the AIRR ETF must meet these criteria:
Direct involvement in production, infrastructure and/or banking.
Generate 75% or more of sales within the US
Projected positive earnings for the next twelve months, based on Wall Street consensus estimates.
This focus on high-quality companies through specific filter criteria aims to generate positive long-term shareholder returns. The strategy has proven successful. Since its inception in March 2014, AIRR has returned 326%, better than the S&P 500’s 293% total return.
AIRR Total Return Price data according to YCharts
What’s impressive about AIRR’s performance history is that it was achieved without high-profile investments in the mega-cap tech sector, which has driven equity market gains over the past decade. This underlines the ETF’s power as a portfolio diversifier, providing exposure to lesser-known smaller companies.
Within the current top five AIRR interests, Granite construction stands out with a gain of 83% since the beginning of the year. The company’s focus on major public works has benefited from increased U.S. infrastructure spending. Two other notable holdings showing strong performance in 2024 are Applied industrial technologieswhich produces infrastructure equipment, including hydraulic control products, and AAONa US-based manufacturer of heating, ventilation and air conditioning (HVAC) systems.
Given AIRR’s portfolio of 54 current stocks, each with a weighting of less than 3.5%, the performance of any single stock is not necessarily important compared to the fund’s broader theme of infrastructure investment and a recovery in industrial activity.
Newly elected President Donald Trump’s “America First” campaign platform expected new tariffs on foreign capital goods. AIRR ETF companies that produce domestically could benefit from increased demand as buyers seek U.S. alternatives to avoid higher prices. Additional initiatives, such as the possibility of corporate tax cuts, could further boost these companies. All of this is taking place in an environment of moderate inflation, which has facilitated recent interest rate cuts by the Federal Reserve.
In my opinion, all the components are in place so that the favorable economic conditions will continue to be an excellent basis for the AIRR ETF in the new year.
I’m bullish on the First Trust RBA American Industrial Renaissance ETF and expect its shares to trade higher next year.
That being said, as with any investment, caution is advised. The biggest risk is a potential economic downturn, which would likely put pressure on companies within the AIRR ETF. Additionally, the fund’s 0.7% expense ratio is relatively high compared to other ETF options. Still, AIRR offers solid exposure to under-the-radar industrial small caps. Long-term investors may find it a worthy addition to a diversified portfolio.
Consider the following before buying shares in First Trust Exchange-Traded Fund VI – First Trust Rba American Industrial Renaissance ETF:
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends Aaon. The Motley Fool has a disclosure policy.
This ETF has crushed the Dow Jones and the S&P 500 in 2024. Here’s how he can keep winning in 2025. was originally published by The Motley Fool
