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The industrial sector has been upgraded from "Marketweight" to "Overweight" by S&P Capital IQ. Factors supporting an investment in related sector exchange traded funds include improved global GDP anticipated in 2013 along with economic stability in China verified by positive economic data.

"We believe it stands to reason that if we see improvement in global GDP and an improved China economy, the Industrials sector should see improved demand for its products and services, which are closely tied to overall U.S. and global GDP growth. An improved global economy would likely lead to more demand for all types of industrial equipment, including construction and manufacturing equipment, as well as increased demand for transportation for all types of goods and services," S&P Capital wrote in a recent note.

The ETF Industrial Select Sector SPDR Fund (NYSEARCA:XLI) has been rated "Overweight" by S&P Capital IQ because of the possibility for this sector to outperform the broad market. XLI tracks the industrial sector in the S&P 500, with $3.6 million in assets under management. The funds has returned 13.43% year-to-date, and has one of the lower expense ratios at 0.18% within the sector. Last week's positive GDP report has put the U.S. industrial sector back in focus for many investors.

Another ETF that was upgraded was the Vanguard Industrials Index Fund (NYSEARCA:VIS) with $522 million in assets. The ETF's one-year total return performance as of December 10 of 15.3% was slightly below Lipper peers and the S&P 500, but its three-year return of 13.1% was ahead of both, reports S&P Capital.

A subset of the industrials sector is the iShares Dow Jones Transportation Average Index Fund (NYSEARCA:IYT) that touts $540 million in AUM. The fund has a 12-month return of 5.49%. Railroad operators make up a large portion of the ETF's holdings. This ETF is considered a barometer of the overall health within the U.S. economy, due to the focus on shipping, railways and the general export market.

iShares Dow Jones Transportation Average Index Fund

(click to enlarge)

Tisha Guerrero contributed to this article.

Source: Industrial, Transportation ETFs Get Upgrades From S&P