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ETFs in Focus as US Manufacturing PMI Data Disappoints

Sweta Jaiswal, FRM

The latest report on U.S. manufacturing, released by the Institute for Supply Management (ISM), has failed to cheer investors. The ISM Manufacturing Purchasing Managers’ Index (PMI) in the United States was the lowest level in more than 10 years at 47.8% for September 2019. Also, contraction came in for the second straight month in September. Notably, readings below 50% indicate contraction.

It is believed that the trade war has been affecting export levels. ISM data also reflected that the reading for new export orders was at the lowest level since March 2009. The metric came in at 41% in comparison with 43.3% in August. There was also a decline in new orders, backlog, raw materials, inventories, exports and import levels. Waning demand was also a reason for the weakest ISM employment metric reading since January 2016 (read: Top ETF Stories of September).

In this regard, ISM chair, Timothy Fiore commented that “global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near-term growth.”

Trump’s Take on the Data

The Fed’s latest decision to cut rates by a quarter basis points failed to please President Trump, who has been urging the central bank to lower the interest rate to zero or push it to the negative territory, just like the European Central Bank. Expressing his views on the matter, Trump recently tweeted that a strong dollar and higher interest rates are mainly responsible for the disappointing manufacturing data (read: Dividend ETFs to Grab as Fed Cuts Rates Once Again).

How Are the Global Economies Doing?

A slowdown in global economic growth is being observed. The Eurozone economy has been going through tough times on falling demand for goods and services. This is especially true as IHS Markit Composite PMI dropped to 50.4 in September from 51.9 in August. This represents the weakest rise in output across manufacturing and services since June 2013. The persistent global trade disputes and the prolonged process involving the Britain exit from the European Union are primarily responsible for the slowdown (read: Eurozone ETFs in Focus on Weak PMI Data).

Moreover, economic impact of the Sino-US trade war resulted in the fastest decline in Japanese manufacturing activity in seven months in September. The Jibun Bank Flash Japan Manufacturing PMI dropped to a seasonally adjusted 48.9 from a final 49.3 in August.

Furthermore, China’s data for August has disappointed investors again. The world’s second-largest economy continues to grapple with slackening domestic demand and tough external conditions. From investment gauges, retail sales to industrial output growth, the weakness was widespread. In fact, industrial output growth in August had been the slowest in 17 and a half years (read: ETFs in Focus as Trade War Takes a Toll on Chinese Exports).

ETFs in Focus

Against this backdrop, investors can take a look at the following ETFs  (see all industrial ETFs here):

The Industrial Select Sector SPDR Fund XLI

The fund tracks the Industrial Select Sector Index (read: Industrial ETFs in Focus as US PMI Data Hits 5-Month High).

AUM: $9.57 billion

Expense Ratio: 0.13%

YTD Return: 15.4%

Vanguard Industrials ETF VIS

The fund tracks the MSCI US Investable Market Index (IMI) Industrials 25/50 index (read: Industrial ETFs in Spotlight as U.S. Manufacturing Picks Up).

AUM: $3.45 billion

Expense Ratio: 0.10%

YTD Return: 16.4%

iShares U.S. Industrials ETF IYJ

The fund tracks the Dow Jones U.S. Industrials Index.

AUM: $878 million

Expense Ratio: 0.42%

YTD Return: 18.7%

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $425.9 million

Expense Ratio: 0.08%

YTD Return: 16.6%

First Trust Industrials/Producer Durables AlphaDEX Fund FXR

The fund tracks the StrataQuant Industrials Index.

AUM: $318.9 million

Expense Ratio: 0.62%

YTD Return: 17.8%

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First Trust Industrials/Producer Durables AlphaDEX Fund (FXR): ETF Research Reports
 
Fidelity MSCI Industrials Index ETF (FIDU): ETF Research Reports
 
Industrial Select Sector SPDR Fund (XLI): ETF Research Reports
 
Vanguard Industrials ETF (VIS): ETF Research Reports
 
iShares U.S. Industrials ETF (IYJ): ETF Research Reports
 
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