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U.S. Manufacturing in the Pink: How Long Will ETFs Gain?

Sanghamitra Saha
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Reflecting solid U.S. economic growth, the Institute for Supply Management’s Manufacturing PMI in the United States increased to 60.2 in June from May’s 58.7. The reading also surpassed market expectations of 58.4. Investors should note that any reading of 50 or higher points to growth.

With this, the U.S. manufacturing logged the strongest expansion in four months as production and inventories grew faster while new orders and employment slowed slightly. Of the 18 manufacturing industries, 17 registered growth in June.

A Wall of Worry in Sight?

However, the ongoing issues with tariff imposition on some countries by the United States on steel and aluminum imports raise concern. Rising prices as a result of tariffs is a considerable negative. Plus, China will likely face tariffs on goods other than steel and aluminum. This might prove to be a major dampener for the sector (read: Trump, Tariff & Geopolitics Lead May: 10 Top ETF Stories).

Surveyed companies seemed highly concerned about President Donald Trump's aggressive trade policies. There has been uncertainty regarding plans to relocate production to other countries to dodge retaliatory tariffs.

Some Food, Beverage & Tobacco Products companies export to more than 100 countries and thus are soft targets of the trade spat. These companies are planning to shift production for the China market from the United States to Canada to get rid of higher tariffs.

Beneficiaries of June Report

Whatever the case, below we highlight a few ETFs that may win in the coming days though concerns persist for the long term.

First Trust RBA America Industrial Renaissance ETFAIRR

With the rampant tariff tensions, America-focused industrial should perform well. The fund follows an index, which measures the performance of small and mid-cap U.S. companies in the industrial and community banking sectors.

Invesco S&P SmallCap Industrials Portfolio (PSCI)

The underlying index consists of common stocks of U.S. industrial companies. These companies belong to industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense and general manufacturing (read: Top-Ranked Sector ETFs to Buy for Q3).

Invesco Dynamic Building & Construction ETF (PKB)

With the economy on solid grounds and demand for product remaining strong, machinery should do well. In any case, U.S. construction spending increased in May on gains in investment in private and public construction projects.

Investors should note that the fund has considerable exposure to Home Builders (23.2%), Building Materials (21.4%), Construction Materials (15.3%), Engineering & Construction (10.7%) and Industrial Engineering (5.3%) (read: Homebuilder ETFs in Focus on Solid New Home Sales Data).

Bottom Line

While the June report came in better-than-expected, the road ahead seems rough, especially with all industries fretting over price hikes.

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