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Industrial ETFs in Focus on Strong GE Q2 Performance

Zacks Equity Research

On Friday, General Electric GE, the industrial conglomerate giant, reported better-than-expected second-quarter 2016 earnings. Revenues too beat our estimates. Earnings per share came in at 51 cents, surpassing the Zacks Consensus Estimate of 46 cents and rising 65% from the year-ago quarter.

Revenues rose 15% year over year to $33.5 billion and were well above the estimated $30.8 billion. Although organic revenue growth and total orders for  the Industrial segment were disappointing, sustained restructuring initiatives with a re-focus on core operations enabled the company to report better-than-expected results (read: Oil Rally Likely to Continue: ETFs & Stocks to Watch).

For 2016, the company reaffirmed its earnings per share guidance of $1.45–$1.55. The Zacks Consensus Estimate of $1.51 is within the guided range. Organic revenue is expected to grow 2–4% while cash generation is estimated at $30–$32 billion. General Electric also intends to return $26 billion to its shareholders this year, including $8 billion in dividends and $18 billion in share repurchases.

Market Impact

In spite of strong Q2 results, shares of GE slipped 1.6% in Friday’s trading session on concerns over organic growth. The industrial ETFs having double-digit allocation to this industrial conglomerate giant are in focus for the days ahead (see: all the Industrials ETFs here).

iShares Edge MSCI Multifactor Industrials ETF INDF

This ETF was launched in May 2016.It has accumulated AUM of $2.6 million and trades in paltry average daily volume of less than 1,000 shares. It follows the MSCI USA Industrials Diversified Multiple-Factor Capped Index and charges 35 bps in fees per year. Holding a small basket of 39 securities, GE takes the top spot with 14.3% allocation. Form a sector look, capital goods occupies the top position at 68.1% followed by transportation (21%).

Fidelity MSCI Industrials Index ETF FIDU

This fund tracks the MSCI USA IMI Industrials Index, holding 335 stocks in its basket. General Electric takes the top spot at 12.9% share with the aerospace and defense industry making up for almost one-fourth of the portfolio, followed by industrial conglomerates at 18.8%. The product has amassed $161.4 million in its asset base while it trades in moderate volume of nearly 81,000 shares a day on average. It is one of the low-cost choices in the space charging 8 bps in annual fees from investors. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Fidelity Slashes Fees for 11 Sector ETFs).

Industrial Select Sector SPDR Fund XLI

This is the largest and most popular ETF in the space with AUM of $7.3 billion and average daily volume of 12.6 million shares. It follows the Industrial Select Sector Index and charges 14 bps in fees per year. Holding a small basket of 68 securities, GE takes the top spot with 11.3% allocation. Form a sector look, aerospace and defense occupies the top position at 26.7% followed by industrial conglomerates (17.8%) and machinery (13.7%). The fund has a Zacks ETF Rank of 4 or ‘Sell’ rating with a Medium risk outlook.
    
Vanguard Industrials ETF VIS

This fund follows the MSCI US IMI Industrials 25/50 index and holds about 345 securities in its basket. Of these firms, GE occupies the top position with 12.5% allocation. Here again, aerospace and defense takes the top spot at 22.7% followed by industrial conglomerates at 20.7%. The fund manages $2.3 billion in its asset base and charges 10 bps in annual fees. Volume is moderate as it exchanges 111,000 shares a day on average. The fund has a Zacks ETF Rank of 3 with a Medium risk outlook.

iShares U.S. Industrials ETF IYJ

This product provides exposure to 213 industrial stocks by tracking the Dow Jones U.S. Industrials Index. It is heavily concentrated in GE – the top firm – with 11.2% of assets while others make up for less than 4.2% share. Further, the ETF is tilted toward capital goods companies at 58.1% while software & services and transportation round off the next two spots with double-digit exposure. The fund has an AUM of $809.4 million and average daily volume of 93,000 shares. Expense ratio came in at 0.45%. The fund has a Zacks ETF Rank of 3 with a Medium risk outlook.

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GENL ELECTRIC (GE): Free Stock Analysis Report
 
VIPERS-INDUS (VIS): ETF Research Reports
 
SPDR-INDU SELS (XLI): ETF Research Reports
 
FID-INDUSTL (FIDU): ETF Research Reports
 
ISHRS-EMS M IND (INDF): ETF Research Reports
 
ISHARS-US INDU (IYJ): ETF Research Reports
 
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