Three ETFs For Increased Manufacturing Activity (IYJ, VAW, DBB, DOW, DD, FCX, GE, MMM, UTX, CAT)

The US economy continues to show signs of improvement, reinforcing signs that economic expansion is gaining momentum and an economic recovery is likely sustainable giving positive support to the iShares Dow Jones US Industrials (NYSE:IYJ), the Vanguard Materials ETF (NYSE:VAW) and the PowerShares DB Base Metals (NYSE:DBB).

Most recently, the Institute for Supply Management’s index jumped to a 57 last month from 56.6 in November, indicating yet another consecutive month of expansion.  Furthermore, the ISM’s report indicated that US factories reported faster rates of orders and production as booking measures rose to a seven month high in December.    

As for the near term future for manufacturers, the chairman of the ISM states that there is still room for inventory replenishment and further gains in manufacturing may dwell from increases in consumer spending and increased demand from the automotive industry.  Retailers witnessed the largest holiday sales jump since 2005 and car sales increased to 12.26 million units in November, the highest level since the cash-for-clunkers program implemented by the Federal government to ignite a spark in the US economy.  In regards to consumer spending, increases are expected to be supported by the extension of the Bush-era tax cuts and the trimming of payroll taxes, which are both expected to increase disposable income. 

As mentioned above, some ETFs likely to be influenced by increasing manufacturing activity include:

  • iShares Dow Jones US Industrials (NYSE:IYJ), which includes holdings such as industrial conglomerate General Electric (NYSE:GE), 3M Co (NYSE:MMM), United Technologies (NYSE:UTX) and Caterpillar (NYSE:CAT).
  • Vanguard Materials ETF (NYSE:VAW), which seeks to track the performance of a benchmark index that measures the investment return of stocks in the materials sector.  Top holdings include E.I. du Pont de Nemours & Company (NYSE:DD), Freeport-McMoRan Copper & Gold (NYSE:FCX) and Dow Chemical (NYSE:DOW)
  • PowerShares DB Base Metals (NYSE:DBB), which holds futures contracts on base metals like copper, aluminum and zinc, all metals that are likely to witness increased demand as manufacturing expands.

Written By Kevin Grewal From ETF Tutor  Disclosure: No Positions 

Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.

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