Some will remember the dozens of container ships stranded off the ports of Los Angeles in the United States in September 2021 amid the post-Covid economic recovery. A record number of freighters (over 70) waited up to several weeks to unload their cargo in Los Angeles and Long Beach.

For its part, China, one of America’s foremost trading partners, was also in a critical situation in terms of maritime transport with 242 container ships awaiting docking across the country, many of them anchored in the wide of Shanghai and Ningbo, ready to load goods. This was all due to a giant traffic jam due to large export volumes, as well as disruption caused by a typhoon and the pandemic. This period coincided with the iShares Transportation Average (IYT) ETF investing in leading US companies operating in the transportation industry hitting a low of $ 240.

Source: trading view

While some of the side effects of the supply crunch could last through Q4-2022, there has been improvement as US retailers have adapted, including sourcing items from different locations, l one of them being Vietnam. The South Asian country with a large manufacturing base producing a large number of items sold in the United States began easing restrictions in early October, after experiencing increased rates of T2-weighted infections. 2021. So, IYT started to rise until it hit the all-time high of $ 280 and now stands at $ 275.

Now, in addition to transportation, IYT also includes airlines as well as railroad and trucking companies. The ETF was made up of 50 stocks on December 31, up from 47 at the start of the month, and tracks the investment results of the S&P Transportation Select Industry Index, which is up around 33.53% in 2021.

Going deeper, railways get the highest share of the fund, at 31.78%, from 34.97% at the start of the month. Exposure to trucking was also slightly reduced.

Source: iShares.com

This reduction in exposure to railways is positive in light of recent data from Tradeshift which indicates some uncertainty in the supply chain (measured by invoice numbers) after global order volumes fell by 24 points in the third quarter of 2021. This was “the largest quarterly drop since the first confinements in early 2020”. In addition, the increase in the percentage of assets held for Union Pacific (NYSE: UNP) from 17.82% (beginning of December) to 18.08% is another positive, because after reducing the volume growth forecast For 2021, due to supply chain disruptions affecting shipments, the company remains bullish on overall volumes this year, projecting growth “ahead of industrial production.”

Exploring further, the fund increased the weighting of the air freight and logistics sector to 30.08%, from 27.82% (at the start of December), while the exposure to airlines was increased by 13, 49% to 14.23%. These increases are expected to help the fund in light of a timid recovery in commercial passenger flights, as well as the continued ‘boom’ in air freight, which is expected to continue to generate strong growth driven by the pandemic, the strongest since. 2017.

These portfolio adjustments, aimed at responding to new supply chain realities, are a key factor that makes IYT as an ETF a better choice than owning individual transport stocks. In return, iShares charges an expense ratio of 0.40%, but this is offset by dividends at a yield of 0.63% (30-day SEC yield). Another peer, the SPDR S&P Transportation ETF (XTN) has a slightly lower expense ratio, but I like the improvement in the value of the IYT since it moved away from the Dow Jones index. Transportation Average July 19.

Finally, with the 10 main names representing more than 73% of net assets at December 31, IYT involves more concentration risks which explain its high degree of volatility. Thus, the first part of 2022 should be very volatile as the markets are injected with a dose of realism after the Santa Claus rally. The stock price could drop as low as $ 260, which is a buying opportunity.