Industrial ETFs In Focus On Strong U.S. Manufacturing Output

The most popular industrial ETF, Industrial Select Sector SPDR XLI was up 1.7% on Jan 18 after data showed that factory production surged in December amid falling exports and lower global market sentiment.

Industrial production, a measure of overall factory, mining and utility output, rose at a seasonally adjusted rate of 0.3% month-over-month in December while U.S. factories, which account for a major share of U.S. total industrial output, increased 1.1% last month—registering the biggest gain since February 2018.

On an annual basis, total industrial production was up 4% in December. Data for November was revised slightly up to 0.4%. For the fourth quarter, total industrial production moved up at an annual rate of 3.8%. Capacity utilization, which indicates how much industries are producing compared to their potential, was up 0.1% to 78.7% in December, the highest reading in nearly four years.

Manufacturing output, which accounts for 12% of the U.S. economy, was at a 10-month high driven by the vehicle and car-part makers. Production levels of appliances, clothing and paper items rose in December. Mining output picked rose 1.5% last month despite the recent volatility in energy prices (read: Auto Sales Surprisingly Up in 2018: ETF & Stocks to Buy).

Increase in manufacturing, alongside a gain in mining output was able to offset a fall in utility output levels. Utility output fell 6.3% from November, with both electric and gas utilities posting sharp declines. Warmer-than-usual temperatures resulted in subdued demand for heating, per the Fed’s report.

Signs of Slowdown Ahead?

Per Michael Pierce, senior U.S. economist at Capital economics, incoming survey evidence suggests that underlying manufacturing output growth is set to slow over the coming months. He added that weak demand in key export markets and appreciation of the greenback, weighing on the competitiveness of U.S. manufacturers, could cause factory output levels to fall sharply in 2019.

Lately, there have been positive developments in the trade talks between Washington and Beijing, boosting global market sentiment. If a long-term trade deal is reached by both the countries, it will be a boost to the global growth scenario and help industrial ETFs (read: U.S., China to Reach a Trade Deal? ETF Areas to Gain).

Industrials ETFs in Focus

Against this backdrop, we highlight five popular Industrial ETFs in detail. These have been performing strongly over the past four weeks (as of Jan 18):

XLI

The fund tracks the Industrial Select Sector Index, which includes companies from industrial conglomerates, aerospace & defense, machinery, air freight & logistics, road & rail, commercial services & supplies, electrical equipment, construction & engineering, building products, airlines, and trading companies & distributors. The fund comprises 69 holdings with Boeing (NYSE:BA) (9.1%) occupying the top position. It has AUM of $10 billion and expense ratio of 0.13%. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. It has returned 12.8% over the past four weeks (see: all the Industrial ETFs here).

Vanguard Industrial ETF (MC:VIS)

The fund tracks the MSCI US Investable Market Industrials 25/50 Index, made up of stocks of large, mid-size, and small U.S. companies within the industrials sector. The fund comprises 352 holdings with Boeing (7.2%) occupying the top position. It has AUM of $3 billion and expense ratio of 0.10%. The fund has a Zacks ETF Rank #2 with a Medium risk outlook. It has returned 13.2% over the past four weeks.

iShares U.S. Industrials ETF IYJ

The fund tracks the Dow Jones U.S. Industrials Index, which tracks domestic companies that produce goods used in construction and manufacturing. The fund comprises 219 holdings with Boeing (6.0%) occupying the top position. It has AUM of $881.6 million and expense ratio of 0.43%. The fund has a Zacks ETF Rank #2 with a Medium risk outlook. It has returned 13.2% over the past four weeks.

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI (LON:IMI) Industrials Index and comprises 345 holdings with Boeing (7.5%) occupying the top position. It has AUM of $375.9 million and expense ratio of 0.08%. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. It has returned 13.2% over the past four weeks.

First Trust Industrials/Producer Durables AlphaDEX Fund FXR

The fund tracks the StrataQuant Industrials Index, which is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology. The fund comprises 95 holdings with Knight-Swift Transportation Holdings Inc (NYSE:KNX) (2.2%) occupying the top position. It has AUM of $334.4 million and expense ratio of 0.63%. The fund has a Zacks ETF Rank #3 with a Medium risk outlook. It has returned 14.4% over the past four weeks.

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