Industrials Are Leading in 2026, But These ETFs Take Different Routes

Key Points

• Industrials have been one of 2026’s stronger sectors, helped by AI infrastructure spending, defense demand, reshoring, and improving manufacturing activity.
• XLI remains the most straightforward industrials ETF because of its low cost, large-cap exposure, and strong liquidity, but broader or more targeted funds may offer different advantages.
• VIS, PRN, and PSCI give investors alternative ways to play the industrials rally through broader sector exposure, momentum-based stock selection, or small-cap upside.

AI infrastructure spending, strong defense demand, and rising manufacturing activity have all helped to push the industrials sector higher this year. The benchmark Industrial Select Sector SPDR Fund NYSEARCA: XLI, which tracks a broad index of large S&P companies in the industrials sector, has returned more than 16% year to date (YTD), making it one of the top-performing sector-specific funds over that period. While industrials names may not have the flashiness of some of the major tech stocks driving the market's overall performance, there may still be ample room for growth for those willing to lean into the industrials space a bit in H2.

A sector-wide investment via an exchange-traded fund (ETF) like XLI can be a great way to do just that. XLI's expense ratio of 0.08% makes it among the cheapest ETFs offering exposure to industrials names, and it also has robust trading volume and assets under management (AUM). For investors seeking a bit more specialized strategy, there are plenty of alternatives that can deliver competitive returns, including the funds below.

Another Low-Cost Option With an Even Broader Portfolio

The Vanguard Industrials ETF NYSEARCA: VIS takes an even broader approach than XLI in that it includes companies of different market capitalizations in its portfolio. In total, there are about 400 holdings in the VIS basket, several times the number that XLI holds. While VIS has a deep list of positions, it is decently concentrated in a fairly small number of individual names—the largest allocations, for companies like Caterpillar Inc. NYSE: CAT and GE Aerospace NYSE: GE, represent up to about 5.8% of the portfolio each.

Another consideration to keep in mind is that VIS has much lower AUM and average trading volume than XLI. This may make VIS less attractive to traders who are particularly active, although as a Vanguard fund, there may be benefits for Vanguard account holders to invest in this ETF. VIS does have a competitive expense ratio at 0.09%, making it another of the cheapest industrials funds available today.

In terms of performance, VIS has XLI beat in 2026: the fund has returned close to 18% YTD. Its modest dividend yield of 0.89% may also help convince investors who are on the fence about the fund's lower trading volume or asset base relative to the highly popular XLI.

Momentum Strategy Is Paying Off, But at a Higher Cost

Factor strategies remain a popular approach for ETF investors, and a fund like the Invesco Dorsey Wright Industrials Momentum ETF NASDAQ: PRN combines a sector focus with a screen for momentum to provide a targeted view of a specific corner of the market. PRN tracks an index including at least 30 industrials stocks selected based on relative strength compared to others in the sector; the fund currently holds more than that, with 44 positions in total.

What this means for investors is that PRN's portfolio has greater distribution across the market cap spectrum than many other sector funds that tend to focus only on the largest companies. While large-caps still make up the majority of the basket, PRN also holds a sizable portion of mid- and small-cap companies. The largest position, Comfort Systems USA Inc. NYSE: FIX, has returned about 80% YTD.

The momentum play has been working in 2026: PRN has returned over 30% YTD, solidly outperforming the funds above. On the other hand, its asset base and trading volume are much smaller than those of an ETF like XLI, and the fund also has a significantly higher expense ratio at 0.60%.

A Small-Cap Strategy for Risk-Tolerant Investors

Another approach to a sector like industrials is to target an often-overlooked portion of the space with a small-cap fund like the Invesco S&P SmallCap Industrials ETF NASDAQ: PSCI. Small-cap industrials stocks, like those across many other sectors, tend to exhibit higher volatility and may generally be a higher-risk, higher-reward venture than larger, more established peers. For PSCI, this means a basket of 90 companies that may be largely unfamiliar to most investors.

A benefit of PSCI is that this diversification (and the fact that no single position accounts for more than 3.2% of the overall portfolio) can help to mitigate the risk inherent in the small-cap niche. When the sector is doing well overall, small-caps can even outperform—PSCI has returned nearly 20% YTD. For an annual fee of 0.29%, the fund is significantly cheaper than an alternative like PRN, too. However, PSCI also has the lowest average trading volume of any fund on this list, so investors should be aware of potential liquidity hurdles.