The industrial select sector SPDR (ticker: XLI) is an exchange-traded fund that tracks the performance of the S&P 500 Industrial Sector Index, which includes large-cap U.S. companies involved in manufacturing, aerospace, defense, construction, and transportation services.
XLI was launched in 1998 and is managed by State Street Global Advisors. It holds 30 stocks, with the largest holdings representing about 50% of the fund's total weight. The fund operates with a low expense ratio of 0.10%, making it cost-effective for long-term investors seeking diversified exposure to industrial activity.
As of June 2024, XLI had $22.6 billion in assets under management. Its top five holdings include United Technologies (now Raytheon Technologies), Caterpillar, Boeing, Honeywell International, and Lockheed Martin. These firms generate revenue from aircraft production, heavy machinery, defense contracts, and industrial automation systems.
XLI uses a passive indexing strategy. It replicates the S&P 500 Industrial Sector Index by holding all constituent stocks in proportion to their market capitalization. The index excludes financials, utilities, and consumer sectors, focusing exclusively on industrial operations.
Rebalancing occurs quarterly. If a company grows or drops below the threshold for inclusion, the fund adjusts its holdings accordingly. For example, in 2023, Boeing was temporarily removed due to declining market cap but reinstated after recovery.
Trading happens during regular U.S. market hours. Investors buy and sell shares through brokerage accounts. The fund trades at a slight premium or discount to net asset value (NAV), which is typical for ETFs. On average, the bid-ask spread is less than $0.05 per share.
XLI's composition reflects broad industrial activity. The top 10 holdings account for 72% of the fund's total weight. This concentration means performance is heavily influenced by a few major players.
| Company | Weight (%) | Industry Segment |
|---|---|---|
| Raytheon Technologies | 10.4% | Aerospace & Defense |
| Caterpillar | 9.2% | Heavy Equipment & Machinery |
| Boeing | 8.7% | Aerospace & Aviation |
| Honeywell International | 7.1% | Industrial Automation & Aerospace Systems |
| L3Harris Technologies | 5.3% | Defense Electronics & Communications |
| General Dynamics | 4.9% | Defense & Marine Systems |
| 3M Company | 4.5% | Industrial Materials & Innovation |
| Lockheed Martin | 4.3% | Defense & Space Systems |
| Deere & Company | 3.8% | Farm Equipment & Industrial Machinery |
| Union Pacific Railroad | 3.1% | Rail Transportation |
These companies represent diverse subsectors within industrial activity. Raytheon and Lockheed Martin benefit from sustained government defense spending. Caterpillar and Deere see demand tied to global infrastructure projects and agricultural cycles. Boeing's performance is sensitive to commercial air travel trends and military procurement cycles.
Investors use XLI to gain targeted exposure to industrial growth drivers. It serves as a core holding in portfolios focused on economic expansion, especially during periods of rising interest rates or infrastructure investment.
For example, in 2022, when the U.S. Congress passed the Infrastructure Investment and Jobs Act, XLI outperformed the S&P 500 by 3.4 percentage points over the following 12 months. This was driven by increased federal funding for highways, rail systems, and port upgrades-sectors where many XLI constituents operate.
Retirement accounts often hold XLI because of its stable dividend yield. As of May 2024, the fund paid a 1.7% annual dividend, higher than the S&P 500 average of 1.3%. The dividend is reinvested automatically unless opted out.
Many confuse XLI with the broader S&P 500 ETF (SPY). While both track indices, SPY includes all 500 large-cap U.S. stocks across sectors. XLI focuses only on industrial companies, which tend to have higher volatility and lower liquidity than broader market ETFs.
Another misconception is that XLI is purely cyclical. While industrial stocks do correlate with GDP growth, the fund includes defensive elements. For instance, Raytheon and Lockheed Martin receive consistent government contracts regardless of economic cycles. Their earnings stability reduces fund risk compared to pure cyclical bets.
A lesser-known fact: XLI is one of the most liquid sector ETFs. Average daily trading volume exceeds 10 million shares. This liquidity allows institutional investors to trade large blocks without significant price impact. According to Morningstar, XLI ranks #2 among sector ETFs in daily volume, behind only the technology sector ETF (XLK).
XLI differs from other industrial-focused funds in structure and focus. Unlike actively managed funds such as the iShares U.S. Industrial ETF (IHH), XLI follows a strict index mandate. It does not overweight any single company beyond market cap weighting.
Compared to the utilities select sector spdr etf xlu, XLI has higher volatility and higher expected returns. XLU is dominated by regulated electric and gas providers with stable cash flows. XLI's holdings are more sensitive to interest rate changes and supply chain disruptions.
| Feature | Industrial Select Sector SPDR (XLI) | Utilities Select Sector SPDR (XLU) |
|---|---|---|
| Expense Ratio | 0.10% | 0.12% |
| Dividend Yield (May 2024) | 1.7% | 2.8% |
| 10-Year Annualized Return (2014-2023) | 9.2% | 6.5% |
| Top Holding | Raytheon Technologies (10.4%) | NextEra Energy (7.3%) |
| Volatility (3-year standard deviation) | 15.4% | 9.8% |
Historical data shows XLI delivered higher returns over long periods but with greater drawdowns during recessions. During the 2008 financial crisis, XLI fell 54% from peak to trough-worse than the S&P 500's 51% drop-but recovered faster, gaining 58% in the next 24 months.
In 2021, a retirement portfolio with $100,000 allocated $20,000 to XLI. Over the next three years, the fund returned 18.7% compounded annually. The investor received $3,400 in dividends, reinvested into additional shares. By 2024, the position was worth $24,300.
This return exceeded the S&P 500's 10.1% annual return over the same period. The outperformance came from strong gains in aerospace and defense stocks, particularly Raytheon and Lockheed Martin, which benefited from increased Pentagon spending.
I've held XLI in my personal portfolio since 2019. I chose it over individual stocks because of diversification and ease of access. The fund's consistent dividend payments helped offset inflation, and I rebalanced annually to maintain sector exposure.
The industrial select sector SPDR (XLI) provides direct access to U.S. industrial leaders. It is not a speculative tool but a strategic vehicle for investors aligned with long-term infrastructure, defense, and manufacturing trends. Its low fees, high liquidity, and transparent holdings make it suitable for both retail and institutional use.