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Getting exposure to global industrials

Notably, the US Engine Room.

The discovery of shale oil in the heartland of America has created two fundamental shifts in the world’s largest economy. The first, which is a necessary precursor to the second, is that it has removed much of America’s energy dependence on the rest of the world. Figures released by the US Energy Agency last year revealed that the US is by far the biggest oil producer, with a production rate of 14.2 million barrels per day (bpd). Saudi Arabia (11.7 million) and Russia (10.5 million) trailed the US on account of the massive increase in shale oil production seen since 2010.

The access to cheap energy has reinvigorated the manufacturing sector in America, which in turn has begun to reverse the decades-long trend of exporting jobs in this sector to countries like China. Manufacturing forms the largest traditional client base of industrial firms. According to PwC, US manufacturers could see their energy costs drop by more than $20 billion a year by 2030.

The iShares Global Industrial ETF provides exposure to some of the world’s bluest blue chip companies, with a distinctly American flavour. The ETF, which is listed on the New York Stock Exchange (NYSE), provides exposure to 192 different companies with 53% of them comprising US listed firms. The two largest companies in the ETF are General Electric (accounting for 7.13% of the portfolio) and 3M (2.97%).

While the ETF is concentrated on companies listed on the world’s developed markets, the distinction is a bit of a misnomer, as most of these firms are truly global in nature. General Electric on its own has 307 000 employees spread across operations in 130 countries.

Other household names in the ETF’s top ten holdings include Siemens of Germany (2.49%), Honeywell (2.24%) and UPS (1.95%). The number of companies listed in the product, their size, as well as their geographical spread, ensures this product is extremely diversified.

In terms of returns, the ETF has delivered solid (annualised) numbers in US dollar terms:

Annualised performance

1 year

3 years

5 years

iShares Global Industrial ETF

5.64%

13.06%

12.67%

 

     

Total expense ratio (TER):

0.47%

   

Net assets ($’m):

257.20

   
       

Those figures in rand terms would be even higher due to the depreciation of the currency over the last few years. The current 12-month trailing dividend yield is 1.85%. Companies in the index are trading at a current price-to-book ratio of 2.82 and price-earnings ratio of 18.79. The FTSE/JSE Industrials index by contrast is selling at a price-earnings multiple of 21.46. So this ETF provides more diversification while offering relative value. This should be used as a long-term exposure to the world’s biggest industrial companies.

** This is a sponsored education series focused on offshore investing. The content is sponsored by Standard Bank Webtrader and Moneyweb are the content creator.

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