U.S. Manufacturing Rebounds: Sector ETFs That Deserve Thanks

The ISM Manufacturing PMI for the United States rose to 60.7 in December 2020 from 57.5 in November and beat forecasts of 56.6. The marked the seventh straight month of rising manufacturing activity and the strongest growth rate since August 2018.

The New Orders Index jumped 67.9%, up 2.8 percentage points from the November reading of 65.1%. The Production Index recorded 64.8%, marking an increase of 4 percentage points from the November reading. The Backlog of Orders Index touched 59.1%, 2.2 percentage points higher sequentially. The Employment Index returned to expansion territory at 51.5%, 3.1 percentage points higher from the November reading of 48.4%.

The Supplier Deliveries Index reading was 67.6%, up 5.9 percentage points from the November figure. The Inventories Index reading came in at 51.6%, up 0.4 percentage point from the November reading. The Prices Index registered 77.6%, up 12.2 percentage points from the November reading. The New Export Orders Index came in at 57.5%, marking a decrease of 0.3 percentage point from the November reading while the Imports Index fell 0.5-percentage point to 54.6%.

Of the 18 manufacturing industries, 16 reported growth in December. Below we highlight a few such sectors and their ETFs that won in December.

ETFs in Focus

Computer & Electronic Products– VanEck Vectors Semiconductor ETF SMH

The segment has been a big beneficiary of the stay-at-home mandate. Thoughservices were hampered in December, many customers did not cancel outright, and business gained momentum in December. China, where business growth is back on track, has been a key contributor in spurring business.

Meanwhile, respondents in the Electrical Equipment, Appliances & Components segment indicated that the “business is stronger than expected, with higher demand for many products.” Since semiconductors are used in computer & electronic products as well as several appliances, SMH should be under watch. The fund has added 1.5% past month.

Metal Products – SPDR S&P Metals & Mining ETF XME

Respondents in the Fabricated Metal Products segment indicated that the ongoing business outlook is strong through the first quarter of 2021. The industry players are expecting 20% sales growth for 2021. Respondents in the Primary Metals segment indicated that “the fourth-quarter production improved more than anticipated, both against the rolling forecast and compared to typical Q4 business.” All these facts must have benefited the metal and mining stocks. XME has gained 7.7% past month.

Manufacturing – Vanguard Industrials Index Fund ETF Shares VIS

Sales in the machinery segment have been above the pre-COVID level. The miscellaneous machinery segment too acknowledged improvement from the coronavirus scenario but noted that uncertainty will linger through the winter months due to rising infections. The pure-play industrial fund VIS, however, has lost 1.3% past month.

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Vanguard Industrials ETF (VIS): ETF Research Reports
 
VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
 
SPDR S&P Metals & Mining ETF (XME): ETF Research Reports
 
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