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Industrial ETFs in Focus as GE Stock Hits 9-Year Low

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Zacks Equity Research
Comtech Telecommunications (CMTL) closed the most recent trading day at $26.47, moving +1.26% from the previous trading session.
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The GE stock tumbled from $15.29 on May 22 to $14.18 on May 23 which is a drop of 7.4%, the single highest drop since nine years. In a press meet, the CEO said that he is looking for a slow but sustainable development and transformation of the company keeping the interests of stakeholders in mind.

The CEO said that dividend will depend on the cash performance and that its business portfolio needs to be revamped (Read: Should You Dig into Value with GE ETFs?).

GE Dealing With Challenges

GE is facing major problems with its largest division -- Power. Integration with the French major Alstom took longer and was one of the worst decisions taken by the previous CEO. As demand for natural gas turbines depleted, the division went into a loss. In order to manage the loss, 12,000 jobs were trimmed from this division as a cost-cutting measure.

The jet-engine and health-care units remain stable. Continuing with its reformist attitude, GE transportation announced the $11 billionmerger of its railroad business with a locomotive firm Wabtec Corp..in May.  In this deal, GE will receive cash of $2.9 billion and retain a 9.9% stake (read: Manufacturing 9-Month Low: Are Industrial ETFs in Trouble?).

What Next?

As some of the GE units are performing below average, the analysts firmly believe that those divisions would be sold at lower prices without much room for negotiation. After the Alstom deal, the operating costs have increased considerably leading to a reduction in profit margins. So, selling off assets will give them sufficient scope to improve their liquidity.

With a global increase in renewable energy sources, overcapacity and lower utilization of resources have impacted GEs power business. The company expects sustainable improvement in their earnings in the coming years through cost-cutting measures and structural reforms, which are underway.

Industrial ETFs

Let us look at some ETFs which have large GE exposure:

Industrial Select Sector SPDR Fund XLI

The fund seeks to track a diverse portfolio of industrial companies of the Industrial Select Sector Index SPDR. With an annual fee of 13 basis points and has amassed assets worth $12.9 billion. The fund comprises 70 holdings and has an average daily volume of 13 million. In terms of individual holdings, GE has 5.7% weightage in the fund. From a sector look, Aerospace & Defense, Industrial Conglomerates and Machinery are the top three allocations with 28.4%, 16.8% and 16.5% weightage. The fund lost 0.12% on May 23.

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks investment results of the U.S. equity market through MSCI USA IMI Industrials Index by investing at least 80% of assets in securities included in the index. It has an expense ratio of 0.08%. This passively managed fundhas 341 holdings in its basket with GE having an individual weightage of 4.5%. It has assets under management of $515.8 million and daily trade volume of 167,530. In terms of sector holdings, Aerospace & Defense, Industrial Conglomerates and Machinery are the top three which controls 24.9%, 18.9% and 13.6% of the portfolio. The fund lost 0.22% on May 23 (read: Top-Ranked Sector ETFs & Stocks From Top Industries).

Vanguard Industrial ETF VIS

The fund seeks to track the performance of a benchmark index that measures the investment return of stocks in the industrials sector MSCI US Investable Market Index (IMI)/Industrials 25/50. It charges an annual fee of 10 basis points. GE has 4.2% stake in this fund. From a sector look Aerospace & Defense (24.3%), Industrial Conglomerates (13%) and Industrial Machinery (10.5%) are the top allocations of the fund. It has 346 holdings in its basket and assets of $3.6 billion under its management. Daily volume of trade stands at 149,300. The fund lost 0.18% on May 23.

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