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Forget Slowing U.S. Manufacturing, Bet on These ETFs

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U.S. manufacturing activity expanded at a slower pace in July for the second consecutive month as raw material shortages continued. The survey from the Institute for Supply Management (ISM) recently revealed that a measure of manufacturing activity dropped by the maximum in 16 months.

The ISM's index of national factory activity declined to 59.5 last month, the lowest reading since January, from 60.6 in June. A reading above 50 indicates expansion in manufacturing, which makes up about 11.9% of the U.S. economy. Economists polled by Reuters had a forecast of about 60.9. As many as 17 out of 18 manufacturing industries reported growth in July, including machinery as well as computer and electronic products. Only textile mills reported a decline.

“As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products," according to Timothy Fiore, chair of the ISM’s manufacturing business survey committee.

Against this backdrop, below we highlight a few ETF areas that look steady even in the moderately downbeat manufacturing environment.

VanEck Vectors Semiconductor ETF (SMH - Free Report)

Industry survey says that business levels in the Computer & Electronic Products continue to register strong demand, with no signs of cooling down. Crunch of raw materials and labor force, as well as logistics issues are resulting in long lead times in purchases. Increased costs are being passed on to customers. No wonder, continued demand for tech-related products should drive semiconductors.

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

Still-low rates, still-cheap energy prices and gradual reopening of economies mean that demand for the Food and Beverage industry will remain high in the coming days, benefiting ETFs like PBJ. Customer demand remains high forcing companies to maximize production rates, per the industry survey.

iShares U.S. Basic Materials ETF (IYM - Free Report)

Both Fabricated Metal Products and Chemical Products reported strong growth in July. The industry survey revealed that the demand has been robust.

iShares 20 Year Treasury Bond ETF (TLT - Free Report)

The benchmark U.S. 10-year Treasury yield declined to 1.15% amid disappointing data, delta variant concerns. This could boost the demand for safe-haven U.S. treasuries. The underlying ICE U.S. Treasury 20+ Year Bond Index assesses U.S. Treasury issued debt. Only U.S. dollar denominated, fixed rate securities with minimum term to maturity greater than twenty years are included.

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