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Industrial ETFs in Focus as US PMI Data Hits 5-Month High

Sweta Jaiswal, FRM

The latest U.S. manufacturing Purchasing Managers’ Index (PMI) reading for September is encouraging. The newest survey from IHS Markit indicated that U.S. manufacturing has surged to a five-month high level. The initial reading of U.S. manufacturing PMI for September came in at 51.0 against 50.3 in August. Notably, readings above 50 are indicative of expansion. However, Markit’s final reading for the month will be released on Oct 1 (read: Industrial ETFs in Spotlight as U.S. Manufacturing Picks Up).

What do the Numbers Say?

Although the data reflects a rebound in manufacturing activity in September, the overall growth rate is the weakest since 2016. Per Markit, the manufacturing sector received considerable support from improving output and strength in new order growth in September. However, Markit stays concerned about weakening export levels with a decline in new work from abroad for the fourth time in five months. Expressing concern, Markit’s chief business economist Chris Williamson said, “prospects also look gloomy, with inflows of new business down to the lowest since 2009 and firms’ expectations of growth over the coming year stuck at one of the most subdued levels since 2012.”

Intensifying the worries, U.S. Services PMI was a little disappointing. It came in at 50.9 for September, comparing favorable with 50.7 in August. However, the reading lagged the 51.5 estimate.

Trade War to be Blamed?

A slowdown in global economic growth is being observed with Trump making rampant attacks to defend his America First agenda. This has resulted in weaker currencies, soft economic growth and slashed forecasts for the countries at the receiving end of his trade-related policies.

Eurozone economy has been going through tough times on falling demand for goods and services. This is especially true as IHS Markit Composite Purchasing Managers’ Index (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 impacts 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: Don't Fear Yield Curve Inversion, Play These Top ETFs Instead).

AUM: $9.90 billion

Expense Ratio: 0.13%

YTD Return: 19.9%

Vanguard Industrials ETF VIS

The fund tracks the MSCI US Investable Market Index (IMI) Industrials 25/50 index (read: U.S. Manufacturing Shrinks: Sector ETFs That Grew).

AUM: $3.55 billion

Expense Ratio: 0.10%

YTD Return: 21.1%

iShares U.S. Industrials ETF IYJ

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

AUM: $907 million

Expense Ratio: 0.42%

YTD Return: 22.6%

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $436.9 million

Expense Ratio: 0.08%

YTD Return: 20.8%

First Trust Industrials/Producer Durables AlphaDEX Fund FXR

The fund tracks the StrataQuant Industrials Index.

AUM: $317.1 million

Expense Ratio: 0.62%

YTD Return: 21.9%

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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
 
First Trust Industrials/Producer Durables AlphaDEX Fund (FXR): ETF Research Reports
 
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