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Industrials ETFs
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About Industrials ETFs |
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Industrial ETFs: Overview and forecast
The description ''industrial'' isn't much of a help when describing an ETF. There are shades and nuances, and above all, a very diverse set of demographics. There are big industrial corporations like General Electric, which are major index components, and there are the industrial minnows, which have almost zero impact on any index.
The common factor with the industrial ETFs is that they've all been hit, very hard, by the meltdown. As of the first quarter of 2009, all but one of them is down by more than 40%, and the one that isn't is down by 10%. That's not a terrific performance, even if, ironically, it's not the worst, either.
US industrial stocks haven't been fountains of optimism lately, either. Credit capital has been virtually non-existent, and some businesses have been going into ''hibernation'' mode, slowing down, trying to retain staff but basically treading water. The general view of anything called ''industrial'' is pretty grim. ETF performance has been patchy, although some are now showing modest positive returns over the first three months of 2009.
However- That's not entirely a fair assessment. The meltdown has been tough, but the world hasn't really ended, nor is it about to end. US industry, like the other sectors, has to get up every day and do business. Some ETFs are benefiting from the return to doing business, after the shock of the initial crash on the Dow and NASDAQ.
The real defining issue with ETFs is always going to be their asset mix. Nowhere is this more obvious than in the industrials, where the basic spread of assets is the main motive force. A mix where a big industrial like GE, for example, is more than 10% of the portfolio, but less than 20%, is obviously weighted across a spectrum. That holding will directly affect the ETF, whatever else happens.
Professional investors looking at Net Asset Values, (NAVs) are obviously going to consider these factors, when assessing ETF potentials. Downside risks, in ETFs, are considered on a microscopic level by professionals who have to look at the NAVs across a skeptical capital investment market.
Short term (2 months)
There are other shows in town, and the industrial ETFs can't be called fashionable, at this point in history. Although there are some signs that the Dow is returning to something like normal trading, it would be ridiculous to assume that either the fear or the loathing have left the market. Investors are jumpy, and their various burns contusions and bruises in the industrial sector stocks won't be soon forgotten or forgiven. The market wants performance, and that's not about to happen in two months.
Medium term (2 years)
Realistically, industrial stocks and a hard nosed investment market can work together well. Now that the market culture has started to insist on performance rather than projections, some of America's industrials might get appreciation for what they actually do. The value of their assets, intellectual property and businesses is underrated, according to some analysts' perspectives.
US industry is long overdue for a move away from the market culture of the last 30 years. Obsolescence, physical and mental, is perceived as one of the obvious areas where change must inevitably occur in industry. Nobody is looking for ''more of the same'' from the industrials, in particular. The industrial ETFs are the obvious beneficiaries of the clear demand for change across the industrial heartland of the US. Two years isn't long enough to see the long overdue end of the dino-culture, but it is long enough to see decent returns, even with a relatively modest approach.
Long term (5 years)
If US industry can shake off its past cultural stagnation and degeneracy, there's no real reason that it couldn't become hyper-competitive, and return to its former status as a global industrial super power. The nation that produces more patents per year than the rest of the planet doesn't have to remain stuck in an absurd 19th century paradigm. If US industry really embraces its technological, intellectual and human assets, the giant could reawaken. In five years, the nature of US industry could be transformed completely.
The trouble with this vision of glory is that investors, the people who will have to put in trillions of dollars, will want to see facts, and an industrial sector which isn't crying poor while flying private jets to Senate hearings. Change is expected, but it's also being demanded by investors. If the industrials want investment money, they have to earn it.
The industrial ETFs are the canaries in the mine, for their sector. Because of their weightings, and because of the hypersensitive nature of the sector over the next few years, and the vulnerability of big industrials like GM and others, they will be the best analytical tool around for market watchers in coming years. The possible upside is excellent, but the wrath of the market will hit any industrial stock which under-performs, or misbehaves.
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Last Updated on: 2010-01-14 02:03:40 |
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