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U.S. Manufacturing at 3-Year High: ETFs in Focus

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The Institute for Supply Management’s (ISM) index of national factory activity rose to a reading of 60.8 last month (which had been the highest since February 2018) from 58.7 in January. The data also fell shy of the economists’ estimate of 58.8. A reading above 50 indicates expansion in manufacturing, which makes up about 11.3% of the U.S. economy.

The latest jump in manufacturing activity can be attributed to a rise in strong sentiments regarding economic rebound. Vaccine distribution and hopes of a hefty fiscal stimulus have been driving the upbeat mood. New orders (64.8 versus 61.1), production (63.2 versus 60.7), employment (54.4 versus 52.6) and new export orders (57.2 versus 54.9) rose at a faster clip.

Of the 18 manufacturing industries, 16 reported growth in February. The winning industries were Textile Mills; Electrical Equipment, Appliances & Components; Primary Metals; Paper Products; Chemical Products; Machinery; Fabricated Metal Products; Transportation Equipment; Wood Products; Plastics & Rubber Products; Computer & Electronic Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Furniture & Related Products; and Nonmetallic Mineral Products. The two industries reporting contraction in February are: Printing & Related Support Activities; and Petroleum & Coal Products.

Against this backdrop, below we highlight a few sectors and the related ETFs that emerged winners in the month of February in the light of the ISM survey data.

Industrial Select Sector SPDR Fund (XLI - Free Report)

The three-year high manufacturing data calls for a bet in the overall manufacturing industry. The fund includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. It charges 12 bps in fees (read: Industrial ETFs to Gain as US Manufacturing Picks Up Amid Coronavirus).

SPDR S&P Metals and Mining ETF (XME - Free Report)

Survey in the Primary Metals segment revealed that new-order log rose 40% over the last two months. The manufacturers are loaded with orders. It means there should be a sold gain in XME that follows the S&P Metals & Mining Select Industry Index. The fund charges 35 bps in fees.

VanEck Vectors Steel ETF (SLX - Free Report)

Steel prices have risen massively in recent months as indicated in the manufacturing survey. This makes SLX a great winner. The 24-stock fund looks to track the overall performance of companies involved in the steel sector. The next expense ratio is 0.56%.

Invesco Dynamic Food & Beverage ETF (PBJ - Free Report)

Surveyed companies in the Food, Beverage & Tobacco Products industry “anticipate a fast and large order surge in the food-service sector as restaurants open back up.” This means that the fund PBJ should be in favorable position ahead.

The fund looks to offer exposure to companies that are mainly engaged in the manufacture, sale or distribution of sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies. The fund charges 63 bps in fees.

SPDR S&P Retail ETF (XRT - Free Report)

Surveyed companies in the Textile Mills indicated that “a sense of urgency is being felt regarding new orders.” New orders are coming in bulk and consumer confidence is improving, making the investing case for apparel companies a timely one. The fund follows the S&P Retail Select Industry Index. The fund charges 35 bps in fees.

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