Global Manufacturing Picks Up: ETFs To Watch

Includes: CHII, EXI, XLI
by: Zacks Funds

The month of March will be remembered for the revival in the manufacturing sector in the world's two largest economies - the U.S. and China. While a stronger dollar and huge capex cuts by energy companies to fight back the plunge in oil prices hurt the U.S. manufacturing sector, soft demand in the wake of global growth worries can be held responsible for the overall global slowdown.

However, things took a turn in March as signs of stabilization showed up. Let's delve deeper into the data.

Finally Chinese Manufacturing in Positive

If we talk of manufacturing slowdown, China comes first to mind. But after posting sluggish factory output data since July 2015, the economy posted growth in March.

China's official manufacturing purchasing managers' index (PMI) came in at 50.2 for March, which beat Reuters' forecast of 49.3 and February's reading of 49.0. Any reading at or above 50 suggests expansion in activity.

While this official data considers larger companies, another index, namely Caixin Manufacturing PMI, considers smaller or medium-sized companies. Investors should note that the Caixin Manufacturing PMI for March also rose to 49.7 from 48.0 in February, "marking the first increase from the previous month in a year."

Improving Trend in the U.S.

A five-month long losing streak also bucked the trend in the U.S. in March. The ISM manufacturing data expanded to 51.8 in March from 49.5 in February buoyed by new orders and increased output. The data came above the Wall Street Journal's expectation of 50.5. Out of the 18 manufacturing industries, 12 reported expansion in March.

What Cooks Up in the Euro Area?

Coming to the Eurozone, the Markit Eurozone Manufacturing PMI came in at 51.6 in March 2016, surpassing a preliminary reading of 51.4 and 51.2 recorded in February. The reading also bettered the forecast of 51.4.

All is not well across the globe. But noticeable improvement in the big three gives us reasons to look at the below-mentioned international industrial ETFs.

Global - iShares Global Industrials ETF (NYSEARCA:EXI)

The fund looks to track the S&P Global 1200 Industrials Sector Index. The $16.2 million ETF is heavy on the U.S. which takes about 53% of the basket. General Electric (NYSE:GE) (8.62%), 3M Co. (NYSE:MMM) (2.93%) and Siemens AG (OTCPK:SIEGY) (2.56%) are the top three stocks of the fund. The fund charges 48 bps in fees. It added 0.5% in the last one month (as of April 5, 2016).

China - Global X China Industrial ETF (NYSEARCA:CHII)

The Global X China Industrial ETF seeks to provide investment results of the Solactive China Industrials Index. The $3.6 million fund charges 65 bps in fees. This fund is heavy on building and construction (34.4%) and machinery and equipment (31.6%) industries. The fund has exposure to about 40 stocks. CHII added 2.9% in the last one month (as of April 5, 2016).

U.S. - Industrial Select Sector SPDR ETF (NYSEARCA:XLI)

This product tracks the Industrial Select Sector Index. General Electric occupies the top spot with an 11.7% allocation, while 3M, Honeywell (NYSE:HON) and Boeing (NYSE:BA) have a combined exposure of over 10% in the fund. XLI has garnered $6.65 billion in assets and trades in heavy volume of 13.8 million shares per day. It has a low expense ratio of 0.14%. The fund has the highest exposure to aerospace and defense (25.3%), followed by industrial conglomerates (21.6%). The product gained 2.4% in the last one month (as of April 5, 2016).

Original Post