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Join the Wall Street Rally With Industrial ETFs

Sanghamitra Saha
·3 mins read

Global stocks staged a monster rally on Mar 24, backed by the bleak signs of slowing coronavirus spread in Italy, one of the hardest-hit countries, and $2 trillion worth of U.S. coronavirus stimulus bill. While all the corners of the market witnessed an upsurge, most-battered zones are likely to bounce more in the coming days as these offer cheaper valuation. One such area is the industrial sector.

Dow Jones Industrial Average (up about 11.4%) recorded the best single-day gain since 1933. There was some good news from the industrial sector lately. Per a Reuters article, Boeing Co BA plans to resume 737 MAX production by May, putting an end to the prolonged halt after its jets suffered deadly crashes. Overall, the industrial sector played an instrumental role in aiding the rally on Mar 24, gaining just behind the energy space.

Ford F and General Electric Co.’s GE health care units are working together to speed up the manufacturing of ventilators. Ford is also collaborating with 3M Co. MMM, the maker of consumer products, to accelerate production of powered air purifying respirators (PAPR) and other personal protective equipment (PPE). Tesla TSLA CEO Elon Musk said that his company is making ventilators for patients.

Investors should note that the stay-at-home policy hurt the industrial sector severely.  IHS Markit indicated that its flash U.S. manufacturing Purchasing Managers Index for March declined to a reading of 49.2 from February’s reading of 50.7. However, the data topped economists’ expectation of a reading of 45.1. Although sentiment in the manufacturing sector was better than expected, the reading came in at the lowest level in 127 months.

The Fed’s ultra-easy monetary policy and a mammoth U.S. government stimulus may also favor the industrial stocks and funds. Against this backdrop, investors with a strong stomach for risks can bet on the following industrial ETFs.

Industrial ETFs in Focus

Industrial Select Sector SPDR Fund XLI

The above-mentioned stocks like 3M Company, Boeing and General Electric take about 12% of the fund. The fund is heavy on Aerospace & Defense (24%) followed by Machinery (16.7%) and Industrial Conglomerates (15.3%). This Zacks Rank #2 (Buy) fund charges 13 bps in fees and yields 3.18% annually. The fund gained 12.7% on Mar 24.

Vanguard Industrial ETF VIS

The fund is heavy on Aerospace & Defense (23.5%), Industrial Conglomerates (12.2%) and Industrial Machinery (11.5%). The Zacks #2 Ranked fund charges 10 bps in fees and yields 2.79% annually. The fund gained 11.9% on Mar 24.

iShares U.S. Industrials ETF IYJ

The fund has solid exposure to Capital Goods (48.8%) and Software & Services (20.4%). This Zacks Rank #3 (Hold) fund charges 42 bps in fees and yields 1.50% annually. The fund gained 11.4% on Mar 24 (read: Can Industrial ETFs Gain Post Mixed Q4 Earnings?).

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Ford Motor Company (F) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
3M Company (MMM) : Free Stock Analysis Report
 
General Electric Company (GE) : Free Stock Analysis Report
 
Vanguard Industrials ETF (VIS): ETF Research Reports
 
Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
iShares U.S. Industrials ETF (IYJ): ETF Research Reports
 
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Zacks Investment Research
 
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