By Ambrose O’Callaghan
The industrial sector is experiencing a resurgence in 2024, fuelled by the three “Rs”: Recovery, Rebuilding, and Repatriation. A concerted effort from the United States leadership has played an outsized role in reinvigorating this sector. Indeed, industrials have been bolstered by three significant pieces of US legislation: (1) The Infrastructure Investment and Jobs Act (IIJA), (2) The CHIPS and Science Act, and (3) The Inflation Reduction Act (IRA). Combined, these Acts have put the US industrial sector in a position to deliver massive growth.
On April 15, 2024, Harvest ETFs launched the Harvest Industrial Leaders Income ETF (HIND:TSX). This ETF offers exposure to leading industrial companies and emerging trends. HIND is overlayed with a covered call writing strategy to provide steady monthly cash distributions.
Record spending in aerospace & defence make this a sector to watch
The aerospace and defence sub-sector make up roughly 25% of HIND’s total sub-sector allocation. Aerospace and defence encompass the manufacturing of aircraft, space vehicles, engines and parts, and other services like maintenance and repair.
According to McKinsey & Co., the commercial aerospace sector has experienced modest but consistent growth since the beginning of this decade. Demand for air travel started to recover quickly from the damage caused by the COVID-19 pandemic. Now, this sector is expected to deliver a compound annual growth rate (CAGR) of 5-10% through 2026.
Meanwhile, the defence industry has delivered record breaking growth in recent years. Global military spending rose for the eighth consecutive year in 2023, according to the Stockholm International Peace Research Institute’s (SIPRI) annual report on global military expenditure. The report showed a 13% year-over-year increase in Europe. That was the steepest expenditure increase in at least 30 years.
The United States, the largest military spender on earth, spent $877 billion in 2022. That represented 39% of total global military spending. China was the second largest military spender at $292 billion in 2022.
Factory automation is revolutionizing the machinery space
Industrial automation is a driving force of innovation and growth in this diverse sector. Grand View Research valued the global industrial automation and control systems market at US$172 billion in 2022. That same report projected this sector would deliver a compound annual growth rate (CAGR) of 10.5% from 2023 through to 2030.
A report from PricewaterhouseCoopers suggests that digital factory innovations are helping to alleviate the pressures that manufacturers face to improve cost, speed, and resiliency. These innovations offer the potential to improve supply chain efficiencies, create new customer relationships, and generate enhanced revenue possibilities.
Parker-Hannifin is an Ontario-based company that manufactures and sells motion and control technologies and systems for various mobile, industrial, and aerospace markets worldwide. This stock is one of 20 equity securities that are part of HIND as at April 19, 2024.
This company is the world’s leading diversified manufacturer of motion and control technologies and systems. Parker Hannifin “provid[es] precision-engineered solutions for a wide variety of mobile, industrial, and aerospace markets.” Some of these automation solutions include machine builders and original equipment manufacturers (OEMs).
The domestic push for semiconductor production is game changer
The global semiconductor industry is positioned for huge growth over the course of the 2020s. McKinsey & Co recently projected that global semiconductor production would grow into a multi-trillion-dollar industry by the end of the decade. Precedence Research recently valued the global semiconductor market at US$591 billion in 2022. The same report projected that this market would reach US$1.88 trillion by 2023. That would represent a CAGR of 12.2% over the forecast period.
Electrical equipment makes up approximately 10% of the holdings within HIND. Eaton Corp is a multinational power management company that is based in Ireland. Back in August 2023, the company announced that it had committed US$500 million to invest in its North American manufacturing. This is largely due to the significant jump in demand for electrical solutions across a variety of industries.
On its corporate website, Eaton boasts that it provides power solutions for the semiconductor industry.
Gain access to industrials AND high monthly income with HIND
Investors will gain access to industrial giants that are poised to benefit from a resurgent US manufacturing sector in the middle and latter half of the 2020s and beyond. Moreover, the ETF employs an active covered call writing strategy on up to 33% of the portfolio securities.
HIND has announced a distribution of $0.07 per Class A Unit, which will be paid on or about June 7, 2024.
Disclaimer
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently, and past performance may not be repeated. The content of this article is to inform and educate and therefore should not be taken as investment, tax, or financial advice. Distributions are paid to you in cash unless you request, pursuant to your participation in a distribution reinvestment plan, that they be reinvested into Class A units of the Fund. If the Fund earns less than the amounts distributed, the difference is a return of capital.
