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5 ETFs to Buy on 13-Year High Manufacturing Activity

Sanghamitra Saha
NantHealth, Inc. (NH) delivered earnings and revenue surprises of 23.08% and -10.83%, respectively, for the quarter ended September 2018. Do the numbers hold clues to what lies ahead for the stock?

Finally, the windfall of hurricanes Harvey and Irma are being realized. U.S. factory activity jumped to a more than 13-year high in September thanks to higher new orders and raw material prices. 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. Just the reading of one industry, Furniture & Related Products, showed sequential contraction in September. In fact, a rebound in construction spending in August has also been noticed. Construction spending increased 0.5% to $1.21 trillion in August. However, July's construction expenditures were revised down to a 1.2% decline instead of the previously reported 0.6% retreat.

This upbeat performance was sort of expected. Hurricane Harvey flooded Texas at August-end and Irma demolished Florida in early September. So, the need for reconstruction of infrastructure and remodeling of houses was higher post hurricanes (read: Top ETF Stories of Third Quarter).

Against this backdrop, we highlight below a few ETF options that can be good momentum plays.

Industrial Innovation ETF ARKQ

Most of the industrial ETFs were in the green post release of manufacturing data. While there are several ETFs available in this space, ARKQ is one of the top beneficiaries. This actively managed ETF seeks long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research. The fund gained about 1.1% on Oct 2 (see all industrials ETFs here).

PowerShares Dynamic Building & Construction ETF PKB

Though nonresidential construction spending could decline in September thanks to back-to-back storms, ongoing activity should be higher in the sector. As per the Commerce Department, Texas and Florida made up about 22% of U.S. private nonresidential construction spending in 2016, as quoted on CNBC.com. This indicates the extent of construction activity in the region and PKB is likely to gain from this trend. The fund gained about 0.7% on Oct 2.

First Trust Multi Cap Growth AlphaDEX Fund FAD

The manufacturing sector makes up about 12% of the U.S. economy. So, higher activity in this arena clearly points to a rebounding economy. This makes the case for investing in growth ETFs like FAD sensible. The fund gained more than 0.6% on Oct 2 (read: Market Hits New Record High: Growth ETFs Top).

Fidelity Dividend ETF for Rising Rates FDRR

The stronger the economy, the higher the chances of a rate hike in December. In any case, the Fed has been acknowledging the need for a rate hike in the final month of the year. In late September, “the dot plot from the last meeting showed 11 out of the Fed’s 16 members are forecasting a rate hike in December.”

Now, upbeat manufacturing data has cemented that possibility. Benchmark 10-Year Treasury bond yield rose to 2.34% on Oct 2 from 2.33% the day before. In this scenario, FDRR can be a good bet. The fund added about 0.5% on Oct 2 (read: Best ETF Strategies for a Hawkish Fed).

First Trust Small Cap Core AlphaDEX ETF FYX

As the greenback has gained post manufacturing data, chances of outperformance in small-cap ETFs are higher now. This is because small-cap stocks are more domestically focused. The fund added about 1.3% on Oct 2.

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PWRSH-DYN BLDG (PKB): ETF Research Reports
FID-DIV RR (FDRR): ETF Research Reports
FT-SC VALUE (FYX): ETF Research Reports
ARK-INDUS INNOV (ARKQ): ETF Research Reports
FT-MULTICAP GR (FAD): ETF Research Reports
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