U.S. Manufacturing Hits Six-Year High: ETFs To Benefit

United States manufacturing survey, initiated by the Institute for Supply Management (ISM), jumped to a six-year high in August. ISM stated that the U.S. manufacturing activity increased to 58.8 in August compared with 56.3 in July. A figure above 50 indicates expansion.

Of the 18 industries, 15 registered expansion, while apparel, primary metals and furniture contracted.

Outlook

Given the strong dependence of American manufacturers on overseas customers, a weaker dollar coupled with strong global growth bode well for the U.S. manufacturing sector, as goods were cheaper for international customers. Although, consumer confidence in the country is strong, high political uncertainty and poor jobs data have been weighing on the greenback.

However, Hurricane Harvey is expected to have short-term impact on U.S. manufacturing, as the economy is greatly dependent on exports from Texas (read: Auto ETFs and Stocks to Ride Out Harvey Disaster).

Increasing geopolitical uncertainty relating to North Korea has increased investor demand for safe havens. North Korea conducted its sixth nuclear test, that of a hydrogen bomb, which can be mounted on an Inter Continental Ballistic Missile, on September 3, 2017. Not only did it trigger an artificial earthquake of magnitude 6.3 but also rattled the markets, with Asian stocks falling while yen, euro and gold surging (read: What Lies Ahead for Gold ETFs?).

Trump Impact

Given the high political uncertainty, U.S. equity funds have been losing favor.

However, there have been certain developments which might have a great impact on U.S. manufacturing. Trump’s most-recent activity includes his investigation into if China is violating international trade laws relating to intellectual property rights. American businesses operating in China are forced to hand over key technological advances to China, while operating their businesses abroad (read: Trump Takes First Step Toward Trade War? ETFs to be Impacted).

Moreover, Trump’s latest threat includes stopping business with any country that trades with North Korea (read: Forget Geopolitics, Large-Cap Growth ETFs Still Strong Buys).

Let us now discuss a few ETFs focused on providing exposure to U.S. Industrial equities.

Industrial Select Sector SPDR Fund XLI

This fund is one of the most popular United States equity ETFs and focuses on providing exposure to the U.S. industrial sector.

It has AUM of $11.62 billion and charges a fee of 14 basis points a year. From a sector look, Aerospace & Defense , Industrial Conglomerates and Machinery take the top three spots, with 23.23%, 19.38% and 16.72% allocation, respectively (as of June 30, 2017). From an individual holdings perspective, the fund has high exposure to General Electric (NYSE:GE) , Boeing Co (NYSE:BA) and 3M Co (NYSE:MMM) with 7.22%, 6.28% and 5.56% allocation, respectively (as of September 1, 2017). The fund has returned 16.61% in the last one year and 9.47% year to date (as of September 1, 2017). XLI currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Vanguard Industrials ETF (MC:VIS)

This fund has AUM of $3.4 billion and charges a fee of 10 basis points a year. From a sector look, Aerospace & Defense , Industrial Conglomerates and Industrial Machinery take the top three spots, with 21.5%, 17.2% and 10.6% allocation, respectively (as of July 31, 2017). From an individual holdings perspective, the fund has high exposure to General Electric, Boeing Co and 3M Co with 8.1%, 5.1% and 4.4% allocation, respectively (as of July 31, 2017). The fund has returned 15.31% in the last one year and 7.49% year to date (as of September 1, 2017). VIS currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

iShares U.S. Industrials ETF IYJ

This ETF is a relatively costly bet on the U.S. industrial sector.

It has AUM of $944.05 million and charges a fee of 44 basis points a year. From a sector look, Capital Goods, Software & Services and Transportation take the top three spots, with 58.39%, 12.75% and 12.19% allocation, respectively (as of September 1, 2017). From an individual holdings perspective, the fund has high exposure to General Electric, Boeing Co and 3M Co with 7.11%, 4.42% and 3.98% allocation, respectively (as of September 1, 2017). The fund has returned 16.24% in the last one year and 10.21% year to date (as of September 1, 2017). IYJ currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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