vibes started were first felt in February when the sector established an improving trend, but March snapped the losing streak of contraction for five successive months (read: Manufacturing Data Point to Recovery: ETFs, Stocks to Consider).
Notably, the ISM manufacturing data expanded to 51.8 in March from 49.5 in February buoyed by new orders and increased output. The data came above the Wall Street Journal expectation of 50.5. Notably, a reading of 50 or higher points to growth. Out of the 18 manufacturing industries, 12 reported expansion in March.
The space has long been hurt by a stronger dollar, huge capex cuts by energy companies to fight back the plunge in oil prices and soft demand in the wake of global growth worries. Inventory accumulation also put a lid on factory activity.
However, the dollar lost some strength in the first quarter of 2016 and the oil patch also saw some pricing gains in this timeframe. The twin benefits must have helped the manufacturing sector to a large extent. All in all, the improving trend noticed for last two months indicate a solid trend reversal in the coming days, especially in the face of a dovish Fed which will keep rates lower for longer and is likely to dampen dollar value (read: ETF Winners & Losers Following Yellen Comments).
Moreover, the U.S. labor market remains healthy going by the recently released data points. This should also back consumers’ purchasing power, boost demand for goods and result in higher factory activity. The scenario beyond the U.S. border should also gain steam on a huge round of monetary easing.
While almost all industrial ETFs in the space experienced a rise post upbeat data on April 1, the following ETFs are likely to be great beneficiaries of this improving trend (see all industrials ETFs here).
PowerShares Dynamic Industrials (PRN)
This ETF tracks the DWA Industrials Technical Leaders Index, giving investors exposure to 52 U.S. industrial companies. PRN includes stocks that are showing relative strength. The $52.1-million fund charges a 60 bps in fees per year from investors.
Aerospace & Defense takes about 20% of the basket followed by IT services (13.0%), building products (12.4%) and industrial conglomerates (11.3%). The fund was up about 1.1%% on April 1 following the release of ISM manufacturing data and has a Zacks ETF Rank of 3 or ‘Hold’ rating.
iShares U.S. Industrials ETF (IYJ)
IYJ tracks the Dow Jones U.S. Industrials Index to provide exposure to 213 U.S. companies that produce goods used in construction and manufacturing. The fund is heavy on General Electric (11.5%). The ETF manages an asset base of $556.9 million and trades in an average volume of 76,600 shares. It charges 44 basis points in fees and rose about 0.6% on April 1, 2016. The fund has a Zacks ETF Rank #3.
Industrial Select Sector SPDR Fund (XLI)
This product tracks the Industrial Select Sector Index. General Electric occupies the top spot with 11.7% allocation, while 3M, Honeywell and Boeing have a combined exposure of over 10% in the fund. XLI has garnered $6.65 billion in assets and trades in a heavy volume of 13.8 million shares per day. It has a low expense ratio of 0.14%. The fund is mostly exposed to Aerospace & Defense (25.3%), followed by Industrial Conglomerates (21.6%). The product gained 0.5% on April 1 and currently has a Zacks ETF Rank #3.
Fidelity MSCI Industrials Index ETF (FIDU)
This fund tracks the MSCI USA IMI Industrials Index. General Electric takes the top spot at 13.4% share with the aerospace and defense industry making up for close to one-fourth of the portfolio, followed by industrial conglomerates at 21.7%. The product has amassed $142.1 million in its asset base. It is one of the low cost choices in the space charging 12 bps in annual fees from investors. The Zacks Rank #3 fund gained about 0.5% on April 1 (read: Industrial ETFs in Focus on GE Mixed Q4 Results).
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