ETF Influences: Factory Shipments, Morocco, and the SEC
Factory Orders Jump on Overseas Demand; ETFs Could, Too
U.S. factory orders saw a big jump in July that could pay dividends down the line for related exchange traded funds (ETFs).
New orders for items such as commercial aircraft, heavy machinery, iron and steel rose 1.3%, beating the 0.8% increase economists had been expecting, reports Martin Crutsinger for the Associated Press. It’s the fifth straight rise in orders.
While the U.S. economy has slowed down, foreign demand has made strong gains. Our weaker dollar has made things cheaper for those overseas, too. Aircraft made the biggest gains in July with a 28.1% jump. Durable goods orders rose 1.3%, while demand for iron and steel rose 5%. Orders for machinery rose up 4.1%, and construction machinery saw a 17.9% increase.
Experts are questioning how long the overseas demand will last, though, as economic weakness spreads to places like Europe and Japan and the dollar rebounds.
Also, Boeing (BA) is potentially facing a strike after union leaders recommended they reject the company’s “best and final” contract offer, reports Tim Klass for the Associated Press. Boeing already has an eight-year backlog of deliveries, and could lose as much as $100 million a day if a strike takes place.
ETFs that could benefit from the rise in factory orders:
- PowerShares Aerospace & Defense (PPA), down 14% year-to-date
- iShares Dow Jones U.S. Aerospace & Defense (ITA), down 12.7% year-to-date
- Market Vectors Steel (SLX), down 5.3% year-to-date
Why Morocco Gains ETF Investor Interest
This year, several ETFs that offer access to frontier markets have launched. Within some of them are interesting countries investors might not know much about, and Morocco is one of them
Over the past decade, Morocco has gained political liberalization and economic growth.
This Arab country is run by a king, but in the '90s many constitutional amendments were introduced and brought about new rights and allowed the exiled to return home, reports ETF Europa.The main challenges Morocco faces is economic stability and keeping unemployment down. Climate conditions and a dependency on other countries are the country’s weakest points. The country also has a big fight against illiteracy ahead of it: 43% of the population over the age of 10 can’t read.
However, since 2007 Moroccan authorities have developed a strategy for creating apprenticeships and agriculture schemes for the handicrafts industry. This plan will help boost the economy and can also help to implement reform.
Unemployment remains rampant in the country, though: It can be as high as 20% in urban areas. In 2007, the GDP growth slowed to 2.1% as the result of a drought that severely damaged agricultural output.
As with many frontier markets, for investors who can stomach the risks, there could be reward. While there is no ETF focused solely on Morocco, exposure to this country lies in PowerShares MENA Frontier Markets (PMNA), where Morocco makes up 10.9% of this ETF.
Checking in with ETF Industry Growth, with Help from the SEC
The ETF growth scope has widened due to a streamlined global regulatory regime on the way and the constant emergence of new products to keep competition at its stiffest.
By the end of 2007 there were 1,171 primary ETF listings on 41 exchanges around the world, up 64% from the year before.
Meanwhile, issuers were expected to launch 547 ETFs this year, and 399 of those were U.S.-listed, with 90 in Europe. In other words, the ETF popularity and proliferation is not going to end anytime soon, report Matt Frostenhausler and Joe Grainger for Investment News.
ETF assets under management are at $797 billion as of the end of last year, a 41% increase from 2006. Average daily trading volume is up 143% to $60 billion, up from $25 billion. Numbers aside, the Securities and Exchange Commission (SEC) voted to allow ETFs to operate without having to obtain individual exemptive orders. Once this is completely granted, the rule change will streamline the process even more.
All of these are pluses for investors because the competition is so stiff, the pressure will be on to keep performance up to par. ETF managers will be judged on returns, liquidity and expense ratios, all good news for investors.
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