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U.S. Manufacturing at a 1-1/2 Year High: 5 Winning ETF Areas

The U.S. ISM Manufacturing PMI came in at 54.2 for July 2020, up from 52.6 in the previous month and surpassing market expectations of 53.6. That is the highest reading since March 2019 as manufacturing activity is recovering after the disturbance caused by the pandemic. U.S. manufacturers expanded in July for the third successive month.

A reading above 50 indicates expansion in manufacturing, which makes up about 11% of the U.S. economy, per Reuters. New orders jumped sharply (61.5 versus 56.4 in June) as new export sales returned to growth, while employment shrank at a softer pace (44.3 versus 42.1).

Out of the 18 manufacturing industries, 13 reported growth in July. The winning industries are Wood Products; Furniture & Related Products; Textile Mills; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Chemical Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Primary Metals; Petroleum & Coal Products; Miscellaneous Manufacturing; and Electrical Equipment, Appliances & Components.

However, despite the improving trend, all is not perfect in the sector. The economic readings suggest that companies are manufacturing considerably fewer goods and employment levels are below the pre-pandemic level.

Against this backdrop, below we highlight a few ETF areas that look steady in a still-weak manufacturing industry.

Food & Beverage – Invesco Dynamic Food & Beverage ETF (PBJ)

The second wave of contagion indicated that demand for food and beverage will remain in the sweet spot in the coming days, benefiting ETFs like PBJ. Demand for refrigerated and frozen beverage and dessert has been stabilizing but is still at higher level than a year ago, survey shows. The fund has added 6.9% past month.

Computer & Electronic Products – VanEck Vectors Semiconductor ETF (SMH)

The computer and peripherals space has been a COVID-19 winner due to the prevailing work-and-learn-from-home culture. A Computer & Electronic Products industry survey showed that manufacturing outlook has improved greatly as business has resumed at about full capacity. The fund has increased 10.3% past month (read: Will Blockbuster Rally of Bitcoin Last? ETFs in Focus).

Energy– Vaneck Vectors Oil Services ETF (OIH)

Though reopening of economies improved demand for energy, uncertainty is prevalent. The energy sector is now developing the 2021 budget around multiple scenarios, per the survey. The fund has advanced 6.8% past month.

Chemical Products – iShares U.S. Basic Materials ETF (IYM)

The industry survey shows that orders have started to rebound, marking an increase of about 35-40%. This puts the fund IYM in a sweet spot. It invests 28.22% in Specialty Chemicals, 9% in Commodity Chemicals, 8.7% in Fertilizers & Agricultural Chemicals, and 2.8% in Diversified Chemicals. The fund has added 5.2% past month.

Wood Products – iShares Global Timber & Forestry ETF (WOOD)

Timber-related exchange traded funds have been on solid momentum as lumber prices continue to rise. On the other hand, the homebuilding sector has been showing sign of improvement as has demand for home-furnishing goods. These factors went in favor of WOOD. The fund WOOD added 9.0% past month (read: Best & Worst ETF Areas of July).

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VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports

VanEck Vectors Oil Services ETF (OIH): ETF Research Reports

iShares Global Timber Forestry ETF (WOOD): ETF Research Reports

Invesco Dynamic Food Beverage ETF (PBJ): ETF Research Reports

iShares U.S. Basic Materials ETF (IYM): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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