FIDU: Industrials Sector 2026 Outlook Is Promising, Upside Is Ahead

Core Viewpoint - The US industrials sector is expected to accelerate growth in 2026, driven by favorable market conditions and robust earnings growth, leading to a buy rating for Fidelity MSCI Industrials Index ETF (FIDU) with a price target of $102 per share, indicating nearly 20% upside from current levels [2][6]. Economic Performance - The US GDP growth rate was around 2.5% in 2023 and is projected to increase to 3% in 2025, with stronger-than-expected growth in recent quarters [10][11]. - The industrials sector outperformed the S&P 500 and MSCI USA indices in fiscal 2025, supported by unprecedented demand in the aerospace and defense industry [5][6]. Earnings Growth - The industrials sector achieved a year-over-year earnings growth of 15.7% in the September quarter, significantly surpassing the consensus estimate of 7.9% [13]. - The earnings growth forecast for the sector in 2026 is robust, with a consensus estimate of 15% [13]. FIDU Performance - FIDU delivered nearly 19% total return in fiscal 2025, comprising 17% price return and 2% dividend return [5]. - The fund is expected to deliver nearly 20% price return and 22% annual total return in 2026, aligning with its three-year annual average [6]. Portfolio Composition - FIDU's portfolio includes 363 companies across 26 industries, with significant weight in aerospace & defense, industrial machinery, and construction equipment [15][16]. - The top 10 holdings account for 30.39% of the portfolio, with GE Aerospace being the largest holding, which saw an 87% price increase over the last twelve months [17][18]. Market Conditions - The current low-rate environment, with the Fed rate expected to decrease to around 3.0% to 3.25% by the end of 2026, is anticipated to boost business activities and consumer spending [11]. - The risk of tariffs has declined, which may further support the industrials sector's performance [11]. Investment Characteristics - FIDU has a low expense ratio of 0.08% and a dividend yield of around 1%, having paid dividends for the past 12 consecutive years [24]. - The fund's valuations are in line with broader market indices, with a trailing PE of around 27x and a price-to-book ratio close to 5.5 [24].