US Industrial Production Misses Expectations: ETFs in Focus – August 18, 2017

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Factory production in the U.S. declined 0.1% in July. The production of motor vehicles declined for the third straight month. It dropped 3.6% in July.

Per the Federal Reserve, industrial production in the U.S. increased 0.2% in July compared with 0.4% in June, and missing expectations of a 0.3% rise. This includes output by mines and utilities which grew 0.5% and 1.6%, respectively.

However, US manufacturing PMI reported a strong reading for July. It increased to 53.3 in July compared with 52 in June 2017, surpassing market expectations of 53.2 (read: Industrials ETFs in Focus on Q2 Earnings).

Moreover, the labor market is strong. Claims for unemployment benefits dropped 12,000 to 232,000 for the week ended August 12, 2017. The number has been below 300,000 for 128 weeks now, indicative of strength in the labor market.

The U.S. economy is also subject to the prevailing geopolitical risks. Recent missile tests indicated that North Korean weapons are capable of reaching American posts. After North Korean premier Kim Jong-Un singled out the American post in Guam as a potential target, President Donald Trump stated that his threats will be met with ‘fire and fury’.

Let us now discuss a few ETFs focused on providing exposure to U.S. Industrial equities (see all Industrial ETFs here).

Industrial Select Sector SPDR Fund (XLI Free Report)

This fund is one of the most popular U.S. equity ETFs and focuses on providing exposure to the U.S. industrial sector.

It has AUM of $12.02 billion and charges a fee of 14 basis points a year. From a sector look, Aerospace & Defense , Industrial Conglomerates and Machinery take the top three spots, with 23.23%, 19.38% and 16.72% allocation, respectively (as of June 30, 2017). From an individual holdings perspective, the fund has high exposure to General Electric (GE Free Report) , Boeing Co (BA Free Report) and 3M Co (MMM Free Report) with 7.22%, 6.25% and 5.69% allocation, respectively (as of August 17, 2017). The fund has returned 14.23% in the last one year and 7.71% year to date (as of August 17, 2017). XLI currently has a Zacks ETF Rank 3 (Hold) with a Medium risk outlook (read: ETFs in Focus Post General Electric Q2 Earnings).

Vanguard Industrials ETF (VIS Free Report)

This ETF is a pure play on the U.S. industrials sector.

It has AUM of $3.4 billion and charges a fee of 10 basis points a year. From a sector look, Aerospace & Defense , Industrial Conglomerates and Industrial Machinery take the top three spots, with 21.5%, 17.2% and 10.6% allocation, respectively (as of July 31, 2017). From an individual holdings perspective, the fund has high exposure to General Electric, Boeing Co and 3M Co with 8.1%, 5.1% and 4.4% allocation, respectively (as of July 31, 2017). The fund has returned 12.60% in the last one year and 5.28% year to date (as of August 17, 2017). VIS currently has a Zacks ETF Rank 3 with a Medium risk outlook.

iShares U.S. Industrials ETF (IYJ Free Report)

This ETF is a relatively costly bet on the U.S. industrial sector.

It has AUM of $942.39 million and charges a fee of 44 basis points a year. From a sector look, Capital Goods, Software & Services and Transportation take the top three spots, with 58.65%, 12.78% and 12.18% allocation, respectively (as of August 16, 2017). From an individual holdings perspective, the fund has high exposure to General Electric, Boeing Co and 3M Co, with 7.20%, 4.39% and 4.09% allocation, respectively (as of August 16, 2017). The fund has returned 13.56% in the last one year and 7.65% year to date (as of August 17, 2017). IYJ currently has a Zacks ETF Rank 3 with a Medium risk outlook.

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