CFRA upgrades Industrials sector on capex supercycle, flags three ETFs

Research firm CFRA upgraded the U.S. Industrials sector to overweight from marketweight on May 20, 2026, citing a capital expenditure supercycle driven by AI data centre buildouts, grid electrification, defence spending, and a renewed focus on domestic manufacturing. The firm recommended the Vanguard Industrials ETF (VIS) as a core portfolio holding, with the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) and Themes Transatlantic Defense ETF (NATO) designated as satellite holdings to capture specific thematic growth.

CFRA highlighted that the Industrials sector is well-positioned to benefit from secular tailwinds in heavy manufacturing and capital goods, which are less vulnerable to direct disruption from generative AI. The firm noted that investors can access U.S. Industrials firms across the market-capitalization spectrum through low-cost indexed ETFs, with VIS serving as a primary vehicle for exposure to these structural trends.

Specific company upgrades underscore the firm’s optimism. CFRA upgraded Caterpillar Inc. to Buy on May 3, 2026, citing record order backlogs driven by robust demand for prime and backup power generation within data centre markets. The rapid growth in high-performance computing has accelerated demand for Caterpillar’s gas generators, which are critical for avoiding total energy loss in these facilities.

The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) has appreciated 27.0 per cent year-to-date through May 27, 2026, driven by strong returns in global equipment manufacturers. The ETF provides targeted exposure to firms benefiting from power infrastructure upgrades, with ABB Ltd and Eaton Corporation plc capturing demand for grid-to-chip infrastructure and high-voltage utility transformers. Schneider Electric S.E. also reported a strong Q1 2026, with revenues of EUR9.8 billion, an 11.2 per cent organic increase.

In the defence segment, CFRA upgraded RTX Corporation to Buy on April 22, 2026, based on exceptional Q1 2026 execution and landmark defence framework agreements. Boeing maintains a record total company backlog of $695 billion, while CFRA views Honeywell International Inc.’s planned separation of automation and aerospace businesses as a value-unlocking move. The firm believes these structural advantages, supported by strong order backlogs, provide multiyear revenue visibility despite near-term cyclical risks.