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Is it the Right Time to Invest in Industrial ETFs?

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The impact of the coronavirus scare can be seen in the manufacturing sector that makes around 11% of the U.S. economy. In fact, the latest report on U.S. manufacturing, released by the Institute for Supply Management (ISM), failed to cheer investors. The ISM’s national factory activity index came in at 50.1 in February comparing unfavorably with 50.9 in January. It also lagged analysts’ expectations of the reading to come in at 50.5, per a Reuters’ poll. Notably, readings above 50% indicate expansion. Moreover, the New Orders Index declined to 49.8 from 52 and the Prices Paid Index dropped to 45.9 from 53.5. Meanwhile, there was a rise from 46.6 to 46.9 in the Employment Index.

After suffering from the trade spat between the United States and China, the ISM index came out of the contraction zone this January for the first time in five months. However, Covid-19 has emerged as a new threat to the manufacturing sector. Manufacturers are struggling with disturbed supply chains and logistics, especially those belonging to the industries like computers and electronics, fabricated metal and chemical. They are having to wait for supply of raw-material parts from the factories in China (read: Will China ETFs Suffer as Coronavirus Dents Factory Output?).

Analysts assume that decline in China’s domestic consumption level will adversely impact the companies belonging to the  transport groups, hospitality chains, airlines, luxury goods makers and retailers. Also, analysts believe  Boeing’s decision  to halt production of its 737 MAX airliner  has affected the manufacturing sector.

Measures to Combat the Virus

Taking investors by a surprise, the Federal Reserve slashed interest rates on Mar 3 in a bid to combat the impact of coronavirus. Rates were cut by a half percentage point to a target range of 1.00% to 1.25%. Highlighting the severity of the situation, the rate cut happened for the first time outside of a scheduled policy meeting since 2008 (read: ETFs to Play as Fed Surprises With a Rate Cut).

On Mar 4, the House passed a bill assigning more than $8 billion in emergency funds to fight the coronavirus outbreak. The funding package has allocated more than $3 billion in vaccine research, and $2.2 billion in measures for prevention and preparedness. However, the coronavirus bill is yet to be approved by the Senate. After getting clearance from the Senate, the bill will be sent for signature of President Trump to the Oval Office desk.

ETFs in Focus

Against this backdrop, investors can still keep a tab of the following ETFs (see all industrial ETFs here):

The Industrial Select Sector SPDR Fund (XLI - Free Report) — down 5.7% year to date

The fund tracks the Industrial Select Sector Index (read: Can Industrial ETFs Gain Post Mixed Q4 Earnings?).

AUM: $9.15 billion

Expense Ratio: 0.13%

Vanguard Industrials ETF (VIS - Free Report) — down 5.8%

The fund tracks the MSCI US Investable Market Index (IMI) Industrials 25/50 index.

AUM: $2.99 billion

Expense Ratio: 0.10%

iShares U.S. Industrials ETF (IYJ - Free Report) — down 4.8%

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

AUM: $835.8 million

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF (FIDU - Free Report) — down 5.3%

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $395.9 million

Expense Ratio: 0.08%

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