ETFs to Gain as U.S. Business Activity Touches 18-Month High

A slew of positive economic data along with a slowdown in the new coronavirus cases is instilling optimism among investors. According to data firm IHS Markit, its preliminary composite purchasing managers index (PMI), which measures both manufacturing and service activities, surged to an 18-month high of 54.7 in August from 50.3 in July (per a Reuters Article). Notably, any reading above 50 indicates expansion. It has also been noted that the United States is seeing faster economic recovery in comparison to Japan, Australia and European nations, per a BloombergQuint article.

Commenting on the data, Sian Jones, an economist at IHS Markit said that, “August data pointed to a further improvement in business conditions across the private sector as client demand picked up among both manufacturers and service providers. Notably, the renewed increase in sales among service sector firms was welcome news following five months of declines,” according to a BloombergQuint article.

Data in Detail

Per a Dow Jones article, IHS Markit PMI for the manufacturing sector came in at 53.6 in August, up from July's 50.9, registering the fastest rate of improvement since January 2019. The metric compared favorably with economists’ expectations of a lower reading of 51.5. Meanwhile, the service activity index rose to 54.8 from 50.

Increase in sales among manufacturing and service sector firms was led by a sharp upturn in new export orders, the IHS Markit report added. In fact, the survey's flash composite new orders index rose to 54 in August (the highest since March 2019) from 49.7 in July, per a Reuters article. With global economies reopening, there was a strong rise in foreign sales as well.

Going on, factory activity expanded in August for the fourth month in a row. The flash manufacturing PMI rose to a 19-month high of 53.6 in August from 50.9 in July, per a Reuters article. Analysts, by the way, were expecting a reading of 51.9 in August. Strength in new orders and production supported the gains. Notably, a gauge of new orders received by factories rose to 54.3 from 51.3 in July, per a Reuters article.

Industrial ETFs to Gain

The U.S. economy has started to reopen in phases and there is massive Fed and government stimulus to combat the crisis which can help the economy rebound. The Federal Reserve officials currently hold the overnight borrowing rate at a range of 0-0.25% after the Jul 28-29 meeting.

Against this backdrop, investors can keep a tab of the following ETFs (see all industrial ETFs here):

The Industrial Select Sector SPDR Fund XLI

The fund tracks the Industrial Select Sector Index (read: Industrial ETFs Are Gaining Despite Mixed Q2 Earnings).

AUM: $11.0 billion

Expense Ratio: 0.13%

Vanguard Industrials ETF VIS

The fund tracks the MSCI US Investable Market Industrials 25/50 index (read: Is Industrials Sector the New Rising Star? ETFs in Focus).

AUM: $3.08 billion

Expense Ratio: 0.10%

iShares U.S. Industrials ETF IYJ

The fund tracks the Dow Jones U.S. Industrials Index (read: Impressed by Earnings Beat? Play These Sector ETFs).

AUM: $866.2 million

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $387.3 million

Expense Ratio: 0.08%

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Vanguard Industrials ETF (VIS): ETF Research Reports
Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
Fidelity MSCI Industrials Index ETF (FIDU): ETF Research Reports
iShares U.S. Industrials ETF (IYJ): ETF Research Reports
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