US industrials companies appear set to benefit from significant US infrastructure spending in the near term. Moreover, US domestic industrial activity may see a limited slowdown amid the war in Ukraine, whereas other countries need to grapple with sanctions on Russia and searching for alternative energy sources. In the longer term, European industrials could see higher demand for renewable energy installations and increasing energy efficiency in buildings, along with increased defense spending.
In the past few weeks, we have seen net outflows from European-domiciled sector ETFs, as heavy selling of financials (mainly European banks) has offset the buying of energy ETFs.1 That trend has slowed in recent days as investors explore other sectors. With sector return dispersion across three and six months at top-percentile levels, sectors remain effective tactical allocation tools.
Overall, investors seem satisfied with buying the US market in light of its relative isolation from the war in Ukraine and its broad economic strength. Within the US, we see a particular opportunity with industrials. The sector is highly correlated to the S&P 500, with a beta of more than 1, and may appeal to investors who want a targeted cyclical and value play on US equities.
So far in 2022, the US industrials sector has outperformed the S&P 500, with the gap widening since the Russian invasion of Ukraine.2
Industrials is a diverse sector, made up of many industry groupings (see Figure 1 for the breakdown of the US sector). The sector lacks any dominant mega cap names and no stock accounts for more than +/- 10% of index performance year to date. This relative lack of idiosyncratic stock risk is notable for investors considering the sector as a vehicle for accessing trends in demand, as detailed below.
Figure 1: Breakdown of US Industrials by Industry (%)
While we see a relatively attractive outlook for many of this sector’s industries, we should caution on the earnings outlook. Previous earnings upgrades for industrials have stalled (along with most sectors). We anticipate margin pressure from increased costs for steel, energy and other commodities, with manufacturers of building products or machinery potentially most affected. Fuel prices will hit airlines in particular. Meanwhile, supply-chain disruptions will push up prices further. The impact on company profits will depend on companies’ ability to pass these costs on.
Focus on aspects of demand
Despite the fear that the growth in economic activity witnessed worldwide in January and February may slow, as the impact of Russian sanctions and dented confidence feed through, we see numerous drivers for the industrials sector, including:
•We expect a pick-up in capital expenditure across industries. Coming out of the Q4 results season, corporate cap ex expectations are high.
•The US $1 trillion infrastructure bill laid out plans for improvements to roads, bridges, airports, waterways and power infrastructure nationwide, which would require services across the industrials sector.
•There is an expected increase in defence spending in Europe (including Germany pledging to go to 2% of GDP). This could boost demand for helicopters, airlift capabilities and missile systems.
•There could be an increase in demand for power generation and renewable energy transition projects as countries look to energy security in the future.
•Elevated crop prices (led by disruption to wheat and corn from Ukraine and Russia) could extend the cycle and thus drive demand for agricultural machinery.
•Demand may rise for mining machinery in response to metals pricing.
•Following years of constrained capital expenditures, oil producers are likely to lift demand for drilling equipment, benefiting producers and associated transportation.
•Shipping/logistics volumes and pricing are forecast to remain high.
US industrials for now, Europe for longer
US industrials companies appear set to be the direct beneficiaries of the significant US infrastructure spending over the next few years. Meanwhile, US domestic industrial activity may see limited slowdown, whereas other countries need to grapple with Russian sanctions and looking for alternative energy sources. For these reasons, we see the most immediate opportunity in the US industrials sector.
However, in the longer term, there is also an investment case for Europe industrials. Many of the quoted companies in this sector could benefit from higher demand for renewable energy installations and increasing energy efficiency in buildings, especially those companies supplying electrical equipment.
For investors who would like a more diversified approach, the world industrials sector broadens the exposure beyond the US (which accounts for 52% of the world market cap) and Europe (26%) to include Japan (14%), which is the second-largest single-country exposure in the index and offers a variety of well-known engineering companies.
How to access this theme
Investors looking to play the industrials theme can do so with SPDR ETFs. To learn more about these ETFs, and to view full performance histories, please click on the links below to visit their fund pages.
1 Source: Bloomberg Finance L.P., as of 16 March 2022.
2 Source: Bloomberg Finance L.P., as of 16 March 2022.
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ETF's worden verhandeld zoals aandelen, zijn onderhevig aan beleggingsrisico, fluctueren in marktwaarde en kunnen worden verhandeld tegen prijzen boven of onder de netto-inventariswaarde van de ETF’s. Brokercommissies en kosten van de ETF zullen het rendement verminderen. De wijzigingen in wisselkoersen kunnen een nadelig effect hebben op de waarde, prijs of inkomsten van een belegging. Verder is er geen garantie dat een ETF zijn beleggingsdoelstellingen zal behalen.
DE SPDR-ETF'S VAN SSGA ZIJN MOGELIJK NIET BESCHIKBAAR OF GESCHIKT VOOR U. DE UITGEDRUKTE MENINGEN/INFORMATIE OP DEZE SITE VORMEN GEEN BELEGGINGSADVIES, FINANCIEEL, JURIDISCH, REGLEMENTAIR, BOEKHOUDKUNDIG OF BELASTINGADVIES. BIJ TWIJFEL DIENT MEN STEEDS ONAFHANKELIJK ADVIES IN TE WINNEN. DE INFORMATIE NOCH ENIGE OPINIE OP DEZE SITE VORMT EEN VERZOEK OF AANBOD VOOR DE AAN- OF VERKOOP VAN AANDELEN VAN DE FONDSEN OF ENIG ANDER FINANCIEEL INSTRUMENT.Standard & Poor’s®, S&P® en SPDR® zijn gedeponeerde handelsmerken van Standard & Poor's Financial Services LLC (S&P); Dow Jones is een gedeponeerd handelsmerk van Dow Jones Trademark Holdings LLC (Dow Jones); en deze handelsmerken zijn in licentie gegeven voor gebruik door S&P Dow Jones Indices LLC (SPDJI) en in sublicentie voor bepaalde doeleinden door State Street Corporation. De financiële producten van State Street Corporation worden niet gesponsord, bekrachtigd, verkocht of gepromoot door SPDJI, Dow Jones, S&P, hun respectieve filialen en externe licentiegevers, en geen van deze partijen doen enige verklaring over de raadzaamheid om te beleggen in dergelijke producten, noch aanvaarden zij enige aansprakelijkheid in verband hiermee, inclusief voor fouten, weglatingen of onderbrekingen van een index.
SPDR-ETF's mogen enkel worden aangeboden en verkocht in rechtsgebieden waar dat is toegelaten in overeenstemming met de geldende regels.
Informatie met betrekking tot Mexico
Deze informatie is geen marketing of aanbieding van effecten en is niet ook niet zo bedoeld, en mag bijgevolg niet als dusdanig worden opgevat. De fondsen waarnaar in dit document wordt verwezen, zijn niet en zullen niet worden geregistreerd onder de Mexicaanse wet op de effectenmarkten (Ley del Mercado de Valores) en mogen in Mexico niet aan het publiek worden aangeboden of verkocht. De documentatie met bekendmakingen in verband met een van de bovengenoemde fondsen mag niet openbaar worden verspreid in Mexico en aandelen van de fondsen mogen niet worden verhandeld in Mexico.
SSGA SPDR ETFs Europe I Plc en SSGA SPDR ETFs Europe II Plc zijn beleggingsmaatschappijen met variabel kapitaal opgericht als fondsen met afzonderlijke aansprakelijkheid tussen de compartimenten volgens de wetten van Ierland en erkend door de Central Bank of Ireland conform de Europese verordening van 2011 over instellingen voor collectieve belegging in effecten. U moet het prospectus en de essentiële beleggersinformatie (KIID) met betrekking tot specifieke SPDR-ETF's aanvragen en zorgvuldig lezen alvorens u belegt. Voor meer informatie en het prospectus/KIID met de kenmerken, kosten en risico's van SPDR-ETF's kunt u nu een prospectus of KIID downloaden, of kunt u deze documenten verkrijgen bij uw financieel adviseur of bij uw lokale SSGA-kantoor.
De in de VS gevestigde SPDR-ETF's die op deze site worden vermeld, zijn enkel toegelaten voor commercialisering in het relevante EER-rechtsgebied conform artikel 42 van de AIFMD (zoals omgezet in nationaal recht van die lidstaat); of kunnen anderszins rechtmatig worden aangeboden of verkocht (inclusief op basis van een verzoek van een professionele/gekwalificeerde belegger). Enkele in de VS gedomicilieerde SPDR-ETF's die op deze site worden vermeld, zijn alternatieve beleggingsinstellingen in de zin van de richtlijn van de Europese Unie inzake beheerders van alternatieve beleggingsinstellingen (Richtlijn 2011/61/EU) (“AIFMD”). SSGA Funds Management, Inc. en State Street Global Advisors Trust Company zijn de beheerders van alternatieve beleggingsinstellingen (“BAB's”) van deze fondsen.
Alvorens u belegt, moet u de beleggingsdoelstellingen, risico's, vergoedingen en kosten van de fondsen in overweging nemen. Een prospectus met deze en andere informatie kunt u downloaden of aanvragen bij uw financieel adviseur. Lees het zorgvuldig alvorens te beleggen.
SPDR® Dow Jones® Industrial Average ETF staat genoteerd en is geregistreerd voor verkoop in Nederland.