4 sector ETFs to bet big on upbeat US manufacturing data

OOn March 1, 2022, the Institute of Supply Management (ISM) announced that its manufacturing index for February rose to 58.6% from 57.7% in January, beating the consensus estimate of 57.7%. This is the 21st straight month of growth for the US manufacturing industry.

Demand for the US manufacturing sector remained strong, with the new orders index rising 3.8% and new export orders rising 3.4% to 57.1%. In addition, the backlog index reached historically high levels of 65%.

Consumption of US manufactured goods remained strong as the production index gained 0.7% to 58.5% and the employment index rose 1.6% to 52, 9%. The employment index rose for the sixth consecutive month.

No less than 16 manufacturing industries recorded growth in February. The winning industries are clothing, leather and related products; Textile factories; paper products; transportation equipment; Machinery; miscellaneous manufacturing; primary metals; Electrical equipment, devices and components; Computer and electronic products; Furniture and related products; Plastic and rubber products; Fabricated metal products; Food, beverages and tobacco products; non-metallic mineral products; Chemical products; and Petroleum and Coal Products. Only wood products recorded a decline.

Against this background, below we highlight a few sectors that emerged winners in the past month. Although some related sector ETFs lost returns last month, the latest manufacturing data shows strength in the sector and calls for a buy-down strategy.

Materials — iShares US Basic Materials ETF IYM

Fabricated metal products and chemical products posted growth in February. The chemical industry takes about a considerable part of the IYM fund. The industry survey confirms that demand has been robust. Fabricated metal products are also seeing steady demand, with steel products reaching historic highs, driven by the automotive and energy industries. IYM is up 3.4% (as of March 3, 2022).

Technology — VanEck Vectors Semiconductor ETF SMH

So far, the computing and peripherals space has been a winner in COVID-19 due to the prevailing work and learn-from-home culture. Although the electronics supply chain is still in a sorry state, demand has been strong so far. The SMH is down 2.7% over the past month (as of March 3, 2022).

Food & Beverage — Invesco Dynamic Food & Beverage ETF PBJ

Demand for food and beverages is expected to remain in the sweet spot over the next few days as these are needed items and less impacted by economic weakness. “Strong demand continued beyond traditional seasonality curves,” the ISM survey revealed. However, higher shipping costs, operational planning and cost management continue to pose threats. PBJ is up 1.4% over the past month.

Industry — Industrial Select Sector SPDR ETF XLI

According to industry experts, there was “revenue growth of around 10% year-over-year [in the machinery sector] due to economic reopening. Demand in the electrical equipment, appliance and component industry continues to be strong, increasing companies’ backlog. Production has been more consistent due to parts availability, but manufacturers are failing to keep pace with increased demand. However, in the automotive field, the shortage of chips is a persistent problem. ETF XLI lost 1.4% last month.

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ETF SPDR selected industrial sector (XLI): ETF research reports

VanEck Semiconductor ETF (SMH): ETF Research Reports

iShares US Basic Materials ETF (IYM): ETF Research Reports

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

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Zacks Investment Research

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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