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3 Sector ETFs to Win Despite Soft Manufacturing Data

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The ISM Manufacturing PMI in the United States declined to 58.7 in December of 2021 from 61.1 in November, falling shy of market forecasts of 60. The reading marked the weakest growth in factory activity since January, due to a slowdown in new orders (60.4 vs 61.5) while employment rose the most since April (54.2 vs 53.3) and prices paid eased maximum since March 2020 (68.2, marking the lowest reading since November 2020, vs 82.4).

Demand has been upbeat while supply chain has been under pressure. Only slight improvement in labor and supplier delivery has been noticed. "All segments of the manufacturing economy are impacted by record-long raw materials and capital equipment lead times, continued shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products. Coronavirus pandemic-related global issues continue to limit manufacturing growth potential. However, panel sentiment remains strongly optimistic", Timothy Fiore, Chair of the ISM said.

All of the six biggest manufacturing industries — Chemical Products; Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Petroleum & Coal Products — recorded moderate-to-strong growth in December.

Out of the 18 manufacturing industries, 15 reported growth in December, while three recorded contraction. Against this backdrop, below we highlight a few ETF areas that look steady.

ETFs in Focus

VanEck Vectors Semiconductor ETF (SMH - Free Report)

The semiconductor sector is sure to gain. Two industries — Computer & Electronic Products and Transportation Equipment — should act as tailwinds. The computer and peripherals space has been a COVID-19 winner due to the prevailing work-and-learn-from-home culture. Rising consumer confidence and reopening of the academic market should boost the demand for computers and related products even more. Continued strong demand led to the production of many vehicles.

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

Demand for food and beverage should remain in the sweet spot in the coming days as these are necessary items and are less ruffled by economic weakness. However, labor is still short and supply chain issues are continuing.

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

Both Fabricated Metal Products and Chemical Products reported growth in December. The chemical industry takes about 50% of the fund IYM with Specialty Chemicals occupying about 30% share. The industry survey revealed that demand has been robust. Fabricated Metal Products has also been witnessing solid demand. Strong construction projects for 2022 and 2023 have acted as the tailwinds for the sector.


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