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Will Industrial ETFs Gain From Improving US Output?
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The latest release on U.S. industrial output data came out to be relieving amid an improving labor market and easing pandemic conditions. Per the Fed’s recently-released data, total industrial production rose 0.5% in February.
A 1.2% rise in the manufacturing output compared favorably with the index remaining almost flat in the last two months. There was a 2.7% decline in utility production. The return of seasonable weather after a drop in temperature in January induced such a discouraging metric. However, mining production witnessed a nominal 0.1% gain, mainly as weakness in oil and gas extraction activities was offset by strength in support activities for oil and gas operations.
Considering the latest data release, investors can track ETFs like The Industrial Select Sector SPDR Fund (XLI - Free Report) , Vanguard Industrials ETF (VIS - Free Report) , Fidelity MSCI Industrials Index ETF (FIDU - Free Report) and iShares U.S. Industrials ETF (IYJ - Free Report) , which might gain from an improving industrial output.
Total industrial production increased 7.5% from the year-ago figure in February. However, the comparison may seem a little biased due to extreme winter weather conditions witnessed in February 2021, disturbing the industrial output activities. To analyze more logically, the index has risen 4.2% since January 2021. According to the Fed’s report, the durable and the nondurable manufacturing indexes rose 1.3% and 1.1% in February, whereas the other manufacturing (publishing and logging) index was down 0.4%.
Capacity utilization for the industrial sector rose 0.3% in February to 77.6%. The manufacturing capacity utilization for the industry, which is the measure for studying how efficiently firms are utilizing their resources, increased 0.9% in February to 78%, up 2.5 percentage points from its pre-pandemic level, per the Fed’s report.
Present U.S. Economic Scenario
Market gyrations have been a common phenomenon in 2022 so far. The Federal Reserve finally gave a nod on Mar 16 to the first rate hike of a 0.25 percentage since December 2018. At the same time, while taking an aggressive approach to increasing the rates, the central bank informed about plans to increase interest rates six times this year. The Federal Reserve is aiming at a consensus funds rate of 1.9% by 2022 end (per a CNBC article).
The Russia-Ukraine crisis, inflation at a 40-year high and the Fed’s hawkish outlook for the interest rate are persistently adding to market ambiguity. As the war tension continues, rising commodity prices and fears of further disruptions in global supply-chain distributions might stoke higher inflation. Also, as the Federal Reserve took an aggressive approach to increasing the rates, market participants are worrying about the U.S. economy slipping into stagflation due to high interest rates and steep inflation.
The surge in gasoline prices to record high levels hurt the consumer sentiment. The latest disappointing preliminary consumer confidence readings for early March that have slipped to the lowest level in about 11 years highlight the same.
Meanwhile, the U.S. economic fundamentals have been staying strong. Despite disappointing U.S. consumer sentiment levels, consumer spending remained robust. Moreover, the labor market continues to improve. According to the Bureau of Labor Statistics, the U.S. economy added 678,000 jobs in February, beating economists’ expectations of 440,000 (per Dow Jones). The unemployment rate also dropped to 3.8%.
The Institute of Supply Management (ISM) reported that its manufacturing index for February rose to 58.6% from 57.7% in January, beating the consensus estimate of 57.7%. This marked the 21st successive month of growth for the U.S. manufacturing industry.
Industrial ETFs in Focus
In the current scenario, we believe, it is prudent to discuss ETFs that have relatively high exposure to industrial companies:
The Industrial Select Sector SPDR Fund (XLI - Free Report)
The Industrial Select Sector SPDR Fund seeks to provide investment results that before expenses, match the performance of the Industrial Select Sector Index. The Industrial Select Sector SPDR Fund has an AUM of $16.44 billion and an expense ratio of 0.10% (read: 6 Sector ETFs That Show Promise After Jobs Data).
Vanguard Industrials ETF offers exposure to the industrial sector and follows the MSCI US Investable Market Industrials 25/50 Index. Vanguard Industrials ETF manages an AUM of $4.74 billion and an expense ratio of 0.10%.
The Fidelity MSCI Industrials Index ETF seeks to provide investment returns that match, before fees and expenses, the performance of the MSCI USA IMI Industrials Index. Fidelity MSCI Industrials Index ETF has an AUM of $820.8 million and an expense ratio of 0.08%.
The iShares U.S. Industrials ETF seeks to track the investment results of the Russell 1000 Industrials 40 Act 15/22.5 Daily Capped Index. iShares U.S. Industrials ETF has an AUM of $1.40 billion and an expense ratio of 0.41%, as stated in the prospectus.
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Will Industrial ETFs Gain From Improving US Output?
The latest release on U.S. industrial output data came out to be relieving amid an improving labor market and easing pandemic conditions. Per the Fed’s recently-released data, total industrial production rose 0.5% in February.
A 1.2% rise in the manufacturing output compared favorably with the index remaining almost flat in the last two months. There was a 2.7% decline in utility production. The return of seasonable weather after a drop in temperature in January induced such a discouraging metric. However, mining production witnessed a nominal 0.1% gain, mainly as weakness in oil and gas extraction activities was offset by strength in support activities for oil and gas operations.
Considering the latest data release, investors can track ETFs like The Industrial Select Sector SPDR Fund (XLI - Free Report) , Vanguard Industrials ETF (VIS - Free Report) , Fidelity MSCI Industrials Index ETF (FIDU - Free Report) and iShares U.S. Industrials ETF (IYJ - Free Report) , which might gain from an improving industrial output.
Total industrial production increased 7.5% from the year-ago figure in February. However, the comparison may seem a little biased due to extreme winter weather conditions witnessed in February 2021, disturbing the industrial output activities. To analyze more logically, the index has risen 4.2% since January 2021. According to the Fed’s report, the durable and the nondurable manufacturing indexes rose 1.3% and 1.1% in February, whereas the other manufacturing (publishing and logging) index was down 0.4%.
Capacity utilization for the industrial sector rose 0.3% in February to 77.6%. The manufacturing capacity utilization for the industry, which is the measure for studying how efficiently firms are utilizing their resources, increased 0.9% in February to 78%, up 2.5 percentage points from its pre-pandemic level, per the Fed’s report.
Present U.S. Economic Scenario
Market gyrations have been a common phenomenon in 2022 so far. The Federal Reserve finally gave a nod on Mar 16 to the first rate hike of a 0.25 percentage since December 2018. At the same time, while taking an aggressive approach to increasing the rates, the central bank informed about plans to increase interest rates six times this year. The Federal Reserve is aiming at a consensus funds rate of 1.9% by 2022 end (per a CNBC article).
The Russia-Ukraine crisis, inflation at a 40-year high and the Fed’s hawkish outlook for the interest rate are persistently adding to market ambiguity. As the war tension continues, rising commodity prices and fears of further disruptions in global supply-chain distributions might stoke higher inflation. Also, as the Federal Reserve took an aggressive approach to increasing the rates, market participants are worrying about the U.S. economy slipping into stagflation due to high interest rates and steep inflation.
The surge in gasoline prices to record high levels hurt the consumer sentiment. The latest disappointing preliminary consumer confidence readings for early March that have slipped to the lowest level in about 11 years highlight the same.
Meanwhile, the U.S. economic fundamentals have been staying strong. Despite disappointing U.S. consumer sentiment levels, consumer spending remained robust. Moreover, the labor market continues to improve. According to the Bureau of Labor Statistics, the U.S. economy added 678,000 jobs in February, beating economists’ expectations of 440,000 (per Dow Jones). The unemployment rate also dropped to 3.8%.
The Institute of Supply Management (ISM) reported that its manufacturing index for February rose to 58.6% from 57.7% in January, beating the consensus estimate of 57.7%. This marked the 21st successive month of growth for the U.S. manufacturing industry.
Industrial ETFs in Focus
In the current scenario, we believe, it is prudent to discuss ETFs that have relatively high exposure to industrial companies:
The Industrial Select Sector SPDR Fund (XLI - Free Report)
The Industrial Select Sector SPDR Fund seeks to provide investment results that before expenses, match the performance of the Industrial Select Sector Index. The Industrial Select Sector SPDR Fund has an AUM of $16.44 billion and an expense ratio of 0.10% (read: 6 Sector ETFs That Show Promise After Jobs Data).
Vanguard Industrials ETF (VIS - Free Report)
Vanguard Industrials ETF offers exposure to the industrial sector and follows the MSCI US Investable Market Industrials 25/50 Index. Vanguard Industrials ETF manages an AUM of $4.74 billion and an expense ratio of 0.10%.
Fidelity MSCI Industrials Index ETF (FIDU - Free Report)
The Fidelity MSCI Industrials Index ETF seeks to provide investment returns that match, before fees and expenses, the performance of the MSCI USA IMI Industrials Index. Fidelity MSCI Industrials Index ETF has an AUM of $820.8 million and an expense ratio of 0.08%.
iShares U.S. Industrials ETF (IYJ - Free Report)
The iShares U.S. Industrials ETF seeks to track the investment results of the Russell 1000 Industrials 40 Act 15/22.5 Daily Capped Index. iShares U.S. Industrials ETF has an AUM of $1.40 billion and an expense ratio of 0.41%, as stated in the prospectus.