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3 ETFs to Play Upbeat Global Manufacturing

Sanghamitra Saha
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The end of Q3 showedan improving trend in manufacturing activity globally. Readings in several big economies’ manufacturing activities came in favorable in recent times giving cues of strength in global superpowers, which should catapult in Q4.

This area had long been an issue given global growth worries translating into softer demand. However, the weakness is dispersing now. Let’s take a look at the data points. Most of the PMI readings came in higher than 50, which points to an expansion in activity (read: 5 Solid Reasons to Buy Industrial ETFs Now).

US Manufacturing at 13-Year High

U.S. factory activity jumped to a more than 13-year high in September thanks to higher new orders. The Institute for Supply Management’s Manufacturing PMI in the United States increased to 60.8 in September 2017 from 58.8 in August, trumping market expectations of 58. Out of the 18 manufacturing industries, as many as 17 registered expansion last month (read: 5 ETFs to Buy on 13-Year High Manufacturing Activity).

Chinese Manufacturing at 5-Year High

Factory activity in China grew at its quickest clip since April 2012 in September, aiding the world's second-largest economy. China’s official PMI came in at 52.4 last month, up from August’s 51.7. The figure also represented the 14th successive month of expansion for China's manufacturing industry.

Euro Zone Activity at 6-Year High

Manufacturing output rose at the quickest pace since April 2011 in the Eurozone. Sturdy growth in the order book led factories to employ additional workers at a record rate. Manufacturing PMI rose to 58.10 in September from 57.40 in August of 2017 (read: How to Trade Strengthening Euro Zone Economy via ETFs).

UK Manufacturing PMI in Growth Zone; But Falling

The Markit/Cips UK manufacturing PMI index indicated that activity dropped to 55.9 last month from 56.7 in August, as commodity prices hurt firms. However, even after a disappointing figure, the reading was still in the growth zone.

Japan Manufacturing Sentiment Upbeat

Manufacturing PMI in Japan increased to 52.90 in September from 52.20 in August 2017. Big companies plan to raise capital expenditure by 7.7% in the current fiscal year ending in March 2018, almost same as their expectations in June. Big manufacturers' sentiment was plus 22 in September, surpassing a median market forecast of plus 18 and the previous June survey of plus 17. The figure also represents the highest level since September 2007.

After all, the Japanese economy grew at an annualized 2.5% in the second quarter on strong consumer and corporate spending, resulting in optimism of a continued recovery. Though all is still not great across the globe, noticeable improvement in the famous four (barring the slowdown in UK) gives us reasons to look at the below-mentioned global industrial ETFs (see all industrials ETFs here).

iShares Global Industrials ETF EXI

The $236.9-million ETF is heavy on the United States, which takes about 51.9% of the basket. Japan (15.2%), France (6.4%) and United Kingdom (4.9%) round out the next three spots. General Electric (4.96%), Boeing (3.28%) and 3M Company (2.95%) are the top three stocks of the fund. The fund chares 48 bps in fees.

First Trust ISE Global Engineering and Construction Index Fund FLM

The $17.1-million ETF is heavy on Japan (28.8%) followed by the United States (22.2%) and France (8.5%) and the Netherlands (5.3%). Kajima Corporation (3.25%), Taisei Corp (3.13%) and Vinci S.A. (3.0%) are the top three stocks of the fund. The 66-stock fund chares 70 bps in fees.

SPDR Industrial Select Sector Fund XLI
A look at U.S. industrial ETFs like XLI also seems wise. General Electric occupies the top spot with 6.77% allocation, while Boeing, 3M and Honeywell have a combined exposure of more than 15% in the fund. XLI has garnered $11.5 billion in assets. It has a low expense ratio of 0.14%. The fund has the highest exposure to aerospace & defense (24.9%), followed by industrial conglomerates (18.4%).

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