Supply-chain issues have been in the spotlight in recent months. The reopening of global economies has meant increased demand in different segments, leading to shortages as well as higher prices. In addition, labor shortages, in part fuelled by "The Great Resignation,” when some corporates tapped new talent to navigate the aftermath of the COVID-19 pandemic and some stressed-out CEOs sought career changes, have contributed to further bottlenecks across industries.
Meanwhile, leading US retailers have come up with creative solutions and chartered ships to move items across continents. These businesses included names like Costco Wholesale (NASDAQ:COST), Home Depot (NYSE:HD), Target (NYSE:TGT) and Walmart (NYSE:WMT).
Manufacturers have also been keeping a close eye on supply chains in Vietnam, a major investment hub that produces a large number of items sold in the US and Europe. In the second half of 2021, infection rates surged in Vietnam, leading to strict lockdowns. But, since early October, Vietnam has been easing many of the COVID restrictions that previously choked business operations.
There are now signs that the worst of the supply-chain issues might be over. And the mood for shares of related businesses have been improving as well. For instance, the VanEck Vietnam ETF (NYSE:VNM), an exchange-traded fund (ETF) that invests in firms in the country, returned about 2.5% in the past month.
Recent research by T Rowe Price has looked at data from “the Baltic Exchange Dry Index, which shows average prices for transporting dry bulk materials across more than 20 routes, and the Harper Petersen Charter Rate Index (HARPEX), which shows price developments in the global charter market for container ships.”
The findings highlight:
“… pricing trends—particularly in the HARPEX—indicate that issues may have at least stopped getting worse.”
Therefore, today we introduce two ETFs that could see higher returns if the trend holds and supply-chain worries do not continue into 2022.
1. American Customer Satisfaction ETF
- Current Price: $50.95
- 52-Week Range: $42.23 - $53.78
- Dividend Yield: 0.70%
- Expense Ratio: 0.66% per year
The American Customer Satisfaction Index (ACSI), developed in 1994 by the University of Michigan Business School, “is a key economic indicator relevant to the competitive stance of individual firms and the health of the economy overall.” ACSI indicates that shares of firms that score highly on the index generally achieve robust stock market returns. Put another way, investors typically follow the satisfied customer.
Further academic research suggests:
“ACSI scores show a statistically positive relationship with the traditional performance measures used by companies and security analysts (i.e., ROA, ROE, price-earning ratio, and the market-to-book ratio).”
The American Customer Satisfaction ETF (NYSE:ACSI) provides exposure to a range of large-cap US stock based on their ACSI customer satisfaction scores. The fund started trading in October 2016.
ACSI, which currently invests in 36 stocks tracks the American Customer Satisfaction Investable Index. The top 10 holdings comprise close to 45% of net assets of $78.9 million.
Portfolio weights of major sectors are: customer discretionary (28%), communication services (15%), information technology (14%), financials (13%) and consumer staples (11%).
Among names on the roster, the biggest slice belongs to Apple (NASDAQ:AAPL), with more than 8%. Next in line are Costco, Amazon (NASDAQ:AMZN), CVS Health (NYSE:CVS), Alphabet (NSADAQ:GOOGL) (NASDAQ:GOOG) and FedEx (NYSE:FDX). Potential investors will note that a sizeable percentage of the fund’s holdings are in companies that will likely benefit from decreasing supply-chain issues.
The fund is up 16.2% this year, and saw a record high in mid-November. Since then, the ETF has lost about 7% of its value. Interested investors could regard $48 as a better entry point.
2. iShares U.S. Transportation ETF
- Current Price: $263.19
- 52-Week Range: $212.80 - $282.40
- Dividend Yield: 0.79%
- Expense Ratio: 0.41% per year
Along with purchasing and manufacturing, transportation is a key part of supply chain management (SCM). In February, US President Joseph Biden signed Executive Order 14017 “America’s Supply Chains,” with an aim to strengthen the country’s supply chains.
Then in June, the administration established the Supply Chain Disruptions Task Force, focusing “on alleviating bottlenecks and supply constraints in the transportation sector, particularly for ports, rail and trucking.”
Establishing modern systems of transportation and trade-related infrastructure enables a country to compete well globally. For example, metrics from Boston Strategies suggest:
“The supply chain benefits of freight transportation infrastructure investment are 1-2% of companies’ operating cost and over 15-20% of their annual transportation expenditure.”
The iShares Transportation Average ETF (NYSE:IYT) invests in leading US companies operating in the transportation sector. They include airlines as well as railroad and trucking firms. The fund was first listed in October 2003.
IYT, which has 47 stocks, tracks the investment results of Dow Jones Transportation Index, which is up about 26.1% in 2021. Railroads get the highest share in the fund, with 34.97%, followed by air freight and logistics (27.82%), trucking (22.41%), airlines (13.49%) and marine (1.11%).
The leading 10 names comprise more than 70% of net assets of $1.72 billion, making it a top-heavy ETF.
The weightings of the railroad operator Union Pacific (NYSE:UNP) and global delivery giant United Parcel Service (NYSE:UPS) are 17.82% and 16.57%, respectively. Then we see CSX (NASDAQ:CSX), one of the leading transportation companies in the US, with 9.10%. Other stocks to note include Old Dominion Freight Line (NASDAQ:ODFL), Norfolk Southern (NYSE:NSC), Uber Technologies (NYSE:UBER) and FedEx (NYSE:FDX).
The fund is up close to 15.4% this year, and hit an all-time high in May. A potential decline toward $240 would improve the margin of safety. We are bullish on many of the names in the fund, which should benefit from the recent infrastructure bill, easing supply-chain issues and continued economic recovery.