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Industrial ETFs to Gain from Upbeat US Manufacturing Data

Sweta Jaiswal, FRM

Amid the slew of encouraging housing data, the latest update on U.S. manufacturing output has pleased investors. Per Federal Reserve’s recently-released data, the manufacturing sector, which accounts for 11% of the U.S. economy, witnessed a 1.1% rise in output in November as against the downwardly revised decline of 0.7% in October. Industrial output also increased 1.1% in November comparing favorably with the downwardly revised fall of 0.9% in October. The manufacturing output and industrial production levels also surpassed analysts’ estimates of a 0.7% and 0.8% gain, respectively (per a Reuters’ poll).

What Led to the Upside?

The upside has been majorly driven by rise in output of motor vehicles and parts that resulted from the end of the strike at General Motors Company’s factories. Also, excluding the impact of motor vehicles and parts, manufacturing output in November increased 0.3%, and the overall industrial production grew 0.5%.

Moreover, output of the utilities sector has improved 2.9% over the past month, while that for mining has dropped 0.2% due to a fall in drilling and other activities in the oil & gas industry.

In November, capacity utilization, the gauge for studying how efficiently firms are utilizing their resources, was up 0.7 percentage point to 77.3% in November as against a downwardly revised 76.6% in October (read: A Look Back At S&P 500 Sector ETFs in 2019).

Looking Forward

The rebound in the manufacturing sector has come as a breather after a series of disappointing manufacturing output data releases of late. Moreover, the interim trade deal between United States and China, where the former has agreed to reduce some existing tariffs and indefinitely postpone the pre-scheduled Dec 15 tariffs, can drive manufacturing activities in the United States. Also, concerns over slowing global growth have abated to some extent.

However, analysts are apprehensive that Boeing’s decision to halt production of its 737 MAX airliner can impede the manufacturing sector’s rebound. In fact, per JPMorgan's chief U.S. economist, Michael Feroli, Boeing's recent decision will chop 0.5 percentage points off gross-domestic-product growth in the first quarter of 2020 (read: Boeing to Halt 737 Production: ETF Losers & One Likely Winner).

Industrial ETFs in Spotlight

Against this backdrop, investors can take a look at the following ETFs:

The Industrial Select Sector SPDR Fund XLI

The fund tracks the Industrial Select Sector Index (read: Fed to Not Hike Rates in 2020: ETF Areas to Shine).

AUM: $10.48 billion

Expense Ratio: 0.13%

YTD Return: 25.5%

Vanguard Industrials ETF VIS

The fund tracks the MSCI US Investable Market Index (IMI) Industrials 25/50 index (read: Top-Ranked ETFs & Stocks to Feast on Thanksgiving and After).

AUM: $3.57 billion

Expense Ratio: 0.10%

YTD Return: 26.5%

iShares U.S. Industrials ETF IYJ

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

AUM: $980.7 million

Expense Ratio: 0.42%

YTD Return: 29%

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $460.8 million

Expense Ratio: 0.08%

YTD Return: 27.7%

First Trust Industrials/Producer Durables AlphaDEX Fund FXR

The fund tracks the StrataQuant Industrials Index.

AUM: $372.1 million

Expense Ratio: 0.62%

YTD Return: 31.1%

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