If you’re worried about the soaring valuations in tech due to artificial intelligence (AI), then you may want to consider diversifying into more stable options, such as in industrials. The Industrial Select Sector SPDR Fund (NYSE:XLI) provides a compelling alternative for investors seeking safety, by gaining exposure to companies building and maintaining the physical economy. Rather than betting on speculative tech valuations, this ETF offers a grounded approach that capitalizes on infrastructure spending, defense contracts, and global logistics.
XLI tracks the Industrial Select Sector Index, holding a basket of heavyweight companies that are fundamental to economic operations. Its top holdings include GE Aerospace and Caterpillar Inc., which together make up over 12% of the fund. These firms benefit directly from secular tailwinds such as the resurgence of North American manufacturing and robust demand for air travel and defense systems. These industrial giants generate reliable cash flows from multi-year contracts and essential services.
The fund is an efficient vehicle for cost-conscious investors, boasting a low expense ratio of just 0.08%. It has also performed well in the current market environment, rising approximately 17% year-to-date in 2025. Additionally, XLI pays a dividend yield of around 1.4%, offering a stream of passive income that many high-growth AI stocks lack. That’s also a higher rate of dividend than the S&P 500 average of 1.2%.
If you are a risk-averse investor looking to diversify away from the volatility and high valuations that can come with the technology sector, this ETF is a suitable buy to anchor your portfolio around for the long haul.
