This 'index of all indexes' is signaling that the US economy is strong, says Kevin O'Leary

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The transports are back on track.

The iShares Transportation Average ETF, which counts railroad operator Norfolk Southern and shipping giant FedEx in its top holdings, climbed out of correction territory on Monday, rallying over 2 percent. A correction is defined as a decline of 10 percent or more in a given security or index.

And because the transport stocks are widely viewed as good economic barometers, that action is an encouraging sign for investors, O’Shares ETF Investments chief and “Shark Tank” co-host Kevin O’Leary told CNBC’s “ETF Edge” on Monday.

“Transports are the index of all indexes” when it comes to gauging the state of the U.S. economy, O’Leary said. “What [the action is] basically telling us is that the, at least domestic, economy is firing on all pistons.”

O’Leary’s one hesitation?

“I do not like market cap-weighted indexes” such as the iShares Transportation Average ETF, he said. “This is not the way to go.”

Market cap-weighted indexes sort their holdings by size, meaning shares of companies with the largest market caps are assigned more importance. Equal-weighted ETFs count their holdings equally regardless of size.

Ric Edelman, executive chairman and co-founder at Edelman Financial Engines, agreed with O’Leary, steering investors toward equal-weighted investments such as the SPDR S&P Transportation ETF.

“It’s a lousy investment strategy,” he said of market cap-weighted funds. “The bigger companies have a bigger impact than the smaller ones, they have greater liquidity due to their size, they’re easier to trade, and so that’s kind of the rationale. But from a pure investment perspective, if you’re going to buy 10 stocks and put 90 percent of your money in three of them, why own the other seven?”

The iShares Transportation Average ETF is up nearly 16 percent year to date, while the SPDR S&P Transportation ETF is up just over 15 percent.

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