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US Trade Deficit Declines in May: ETFs in Focus

The U.S. trade deficit shrank in May 2017, owing to impressive export data. Rising shipments of automobiles and consumer goods contributed to the decline.


Per the Commerce Department, U.S. trade deficit declined 2.3% in May to $46.5 billion compared with $47.6 billion in April, while exports increased 0.4% to a two-year high of $192 billion.


Among its biggest partners, U.S. trade deficit with China declined 2.3% to $30.1 billion in May, while with the European Union it declined almost 20% to settle at $10.7 billion. However, owing to uncertainty over NAFTA renegotiation talks, trade deficit with Mexico increased 5.6% to $6.8 billion.


President Donald Trump’s primary agenda has been on renegotiating ‘unfair’ trade deals with the trading partners of the U.S. and to bring down the deficit of the world’s largest economy (read: Blue Chips to Soar Ahead? Buy These 5 ETFs).


As far as the economy’s performance is concerned, U.S. manufacturing sentiment represented by the Institute for Supply Management Manufacturing (ISM) index surged to a three-year high of 57.8 in June 2017 compared with 54.9 in May. Moreover, services sector increased to a two-month high. ISM non-manufacturing purchasing managers’ index rose to 57.4 in June, compared with 56.9 in May (read: U.S. Economic Growth Improves: ETFs to Buy).


Let us now discuss a few ETFs focused on providing exposure to U.S. Industrial equities.


Industrial Select Sector SPDR Fund XLI


This fund is one of the most popular U.S. equity ETFs and focuses on providing exposure to the U.S. industrial sector.


It has AUM of $10.95 billion and charges a fee of 14 basis points a year. From a sector look, Aerospace & Defense , Industrial Conglomerates and Machinery take the top three spots, with 22.66%, 20.22% and 16.31% allocation, respectively (as of March 31, 2017). From an individual holdings perspective, the fund has high exposure to General Electric GE, 3M Co MMM and Boeing Co BA, with 7.60%, 5.71% and 5.29% allocation, respectively (as of July 6, 2017). The fund has returned 21.61% in the last one year and 10.57% year to date (as of July 6, 2017). XLI currently has a Zacks ETF Rank 3 (Hold) with a Medium risk outlook.


Vanguard Industrials ETF VIS


This ETF is a pure play on the U.S. industrials sector.


It has AUM of $3.2 billion and charges a fee of 10 basis points a year. From a sector look, Aerospace & Defense , Industrial Conglomerates and Industrial Machinery take the top three spots, with 20.5%, 18.1% and 10.6% allocation, respectively (as of May 31, 2017). From an individual holdings perspective, the fund has high exposure to General Electric, 3M Co and Boeing Co, with 8.8%, 4.5% and 4% allocation, respectively (as of May 31, 2017). The fund has returned 20.32% in the last one year and 8.42% year to date (as of July 6, 2017). VIS currently has a Zacks ETF Rank 3 with a Medium risk outlook.


iShares U.S. Industrials ETF IYJ


This ETF is a relatively costly bet on the U.S. industrial sector.


It has AUM of $990.32 million and charges a fee of 44 basis points a year. From a sector look, Capital Goods, Transportation and Software & Services take the top three spots, with 58.78%, 12.46% and 12.34% allocation, respectively (as of July 5, 2017). From an individual holdings perspective, the fund has high exposure to General Electric, 3M Co and Boeing Co, with 7.87%, 4.14% and 3.74% allocation, respectively (as of July 5, 2017). The fund has returned 18.43% in the last one year and 9.29% year to date (as of July 6, 2017). IYJ currently has a Zacks ETF Rank 3 with a Medium risk outlook.


Bottom Line


Though narrowing of the trade deficit in May is a positive, per MarketWatch it is still up over 13% so far this year. The deficit stands at $233.1 billion compared with $206 billion in the first five months of 2016. Moreover, there is still high uncertainty around President Donald Trump’s pro-growth policies. As a result, we believe it is best to remain on the sidelines for now.


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Boeing Company (The) (BA): Free Stock Analysis Report
 
3M Company (MMM): Free Stock Analysis Report
 
General Electric Company (GE): Free Stock Analysis Report
 
VIPERS-INDUS (VIS): ETF Research Reports
 
SPDR-INDU SELS (XLI): ETF Research Reports
 
ISHARS-US INDU (IYJ): ETF Research Reports
 
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