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Bet Big on Industrial Metal ETFs on Vaccine Optimism

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Wall Street has been on a rallying mode in recent sessions on news that a Pfizer (PFE - Free Report) and BioNTech (BNTX) vaccine candidate was more than 90% effective in avoiding COVID-19 in its clinical trial. Before this, the global markets were rejoicing in the possibility of a divided congress in the United States.

A divided congress or balanced government means status quo, “which prevents big changes to health care and the tax code," said Darrell Cronk, president of Wells Fargo Investment Institute, as quoted on nbcnews.com. Some of Biden’s proposed policies (like tax hike) may not see an easy passage as chances of a balanced government are high.

Then, the vaccine news instilled more optimism in the markets as it calls for return to normalcy. This, in turn, will boost economic recovery and industrial activities (read: 5 ETFs Up Double Digits in a Day on Vaccine Optimism).

Global Manufacturing Improving

Investors should note that global manufacturing activities are in decent shape even with surging virus cases. October U.S. manufacturing data came in at about the two-year best. The Institute for Supply Management (ISM) said on Nov 2 that its index of national factory activity rose to a reading of 59.3 last month from 55.4 in September. That marked the steepest growth since September 2018. Economists polled by Reuters had forecast that the index would rise to 56.4 in October.

The Caixin China General Manufacturing PMI increased to 53.6 in October 2020, hinting at the sixth successive month of growth in factory activity, and the strongest reading since January 2011.

Brazilian manufacturing grew at a record clip in October as employment and export orders jumped to new highs.  IHS Markit’s Brazil manufacturing purchasing managers index (PMI) report was decent, but showed record-high input and output prices due to the consistently weak exchange rate.

The IHS Markit Eurozone Manufacturing PMI was revised slightly higher to 54.8 in October 2020. The latest reading marked the sharpest month of growth in the manufacturing sector since July 2018 (read: Global Manufacturing Improving: ETFs in Focus).

All these figures point to the fact that industrial metals prices should rally ahead. Copper prices are hovering around a 28-month high. The brighter prospect of the EV industry is also keeping the demand outlook decent for industrial metals like nickel and lithium. Against this backdrop, below we highlight a few industrial ETFs.

Industrial Metal ETFs in Focus

Invesco DB Base Metals Fund (DBB - Free Report)

The underlying DBIQ Optimum Yield Industrial Metals Index Excess Return Index is a rules-based index composed of futures contracts on some of the most-liquid and widely used base metals like aluminum, zinc and copper. It is intended to reflect the performance of the industrial metals sector. The expense ratio of the fund is 0.84% annually.

iPath Series B Bloombrg Indstrial Metal Subindx Totl Retrn ETN (JJM - Free Report)

The note is designed to provide exposure to the Bloomberg Industrial Metals Subindex Total Return. The product reflects the returns that are potentially available through an unleveraged investment in the futures contracts on industrial metal commodities. The expense ratio of the fund is 0.45% annually.

iPath Series B Bloomberg Copper Subindex Total Return ETN (JJC - Free Report)

The Bloomberg Copper Subindex Total Return reflects the returns that are potentially available through an unleveraged investment in the futures contracts on copper. The fund charges 45 bps in fees.

iPath Series B Bloomberg Nickel Subindex Total Return ETN (JJN - Free Report)

The Bloomberg Nickel Subindex Total Return reflects the returns that are potentially available through an unleveraged investment in the futures contracts on nickel. The fund charges 45 bps in fees.

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