What is EXI? (Pros, Cons, and Strategies)

Investing in a diversified portfolio is essential for long-term financial stability. One avenue that stands out for exposure to the industrial sector is the iShares Global Industrials ETF, commonly known by its ticker symbol EXI. Whether you're aiming to balance your portfolio or capitalize on global industrial growth, EXI could be an excellent option. Today, we'll dive deep into what EXI is, and explore its advantages, disadvantages, and potential investment strategies.

What is EXI?

EXI is the iShares Global Industrials ETF that gives investors exposure to a broad range of industrial companies from around the world.

The ETF tracks the S&P Global 1200 Industrials Sector Index, a benchmark that represents leading industrial companies. By investing in EXI, you're essentially gaining access to a diversified portfolio of industrial stocks that span across various countries and sub-sectors.

Key Features of EXI

• Global Diversification: Exposure to industrial companies from multiple countries, not just the U.S.
• Broad Sector Coverage: Includes sub-sectors such as aerospace, machinery, transportation, and commercial services.
• Automatic Rebalancing: The ETF periodically rebalances its holdings to align with the S&P Global 1200 Industrials Sector Index.

EXI Composition

EXI's portfolio includes large-cap industrial companies like Siemens (SIEGY), Honeywell International (HON), Airbus (EADSY), and UPS (UPS). The ETF invests in companies that are considered leaders in their respective fields, ensuring broad exposure to the global industrial landscape.

Pros of EXI

Global Exposure

One of the most compelling reasons to invest in EXI is its global exposure. This diversification helps minimize country-specific risks and takes advantage of industrial growth wherever it occurs. While U.S.-based ETFs limit exposure to domestic companies, EXI includes stocks from Europe, Asia, and other regions, broadening the investment horizon.

Industry Leaders

EXI includes top-performing industrial companies known for their innovation and market leadership. This high-quality stock selection can potentially offer more stable and sustainable growth. Companies like Siemens and Honeywell have a history of robust financial performance, making them reliable inclusions in the portfolio.

Sector Diversification

Industrial sectors can be expansive, and different sub-sectors like aerospace and transportation may perform differently under varying market conditions. By investing in EXI, you're gaining exposure to multiple industrial sub-sectors, providing a diversified hedge.

Transparent and Cost-Effective

With an expense ratio typically around 0.43%, EXI remains a cost-effective choice for investors looking to diversify without incurring significant fees. The ETF's transparency also allows investors to easily track its performance and understand exactly what they own.

Cons of EXI

Sensitivity to Economic Cycles

Industrial stocks are often cyclical, meaning their performance can be significantly impacted by the broader economic environment. During economic downturns, industrial companies may experience decreased demand, which can negatively affect the ETF's performance.

Limited Focus

While global exposure is an advantage, a focus on a single sector (industrials) can be limiting. A downturn in industrial production globally could hurt the ETF's performance more than a well-diversified sectoral ETF might.

Dividend Yield

EXI's dividend yield is modest in comparison to some other sector-specific ETFs. Investors seeking high dividend income might find better options elsewhere.

EXI Investment Strategies

Investing in EXI can be catered to fit both short-term and long-term financial goals, depending on your individual risk tolerance and investment timeline.

Long-term Investment Strategy

For those focusing on long-term growth, EXI can be a core component of a diversified portfolio. By holding the ETF for 10 years or more, you can leverage global industrial growth trends and benefit from the compounding effect of reinvested dividends. Moreover, the periodic rebalancing of EXI ensures alignment with market trends and reduces the need for active portfolio management.

Sector Rotation Strategy

If you subscribe to a sector rotation strategy, EXI provides a convenient way to gain industrial sector exposure. As economic cycles shift, you can adjust your portfolio to overweight or underweight industrials relative to other sectors. EXI’s broad sub-sector exposure within industrials adds an extra layer of diversification.

Complement to Other ETFs

Combining EXI with other sector-specific or broad-market ETFs can further diversify your portfolio. Mixing EXI with technology or healthcare ETFs, for instance, can balance the cyclical nature of industrials with more secular growth trends in other sectors.

Conclusion

EXI offers investors a unique opportunity to gain global exposure to leading industrial companies. While it comes with its own set of risks—particularly its sensitivity to economic cycles—its advantages such as global diversification, high-quality stock selection, and sector diversification make it a compelling choice for both long-term and strategic investors. By understanding these factors, you can better evaluate if EXI aligns with your investment goals and risk tolerance.