Someone Bet $28 Million on Industrials ETF

(Bloomberg) -- What trade war?

Equity bulls sent U.S. stocks to the biggest rally in five weeks Friday even as the trade spat between America and China escalated. While biotech shares led the gains, stocks that stand to lose the most as tariffs on billions of goods took effect also surged. Chief among them: beaten-down industrials.

Someone sank about $28 million into the iShares U.S. Industrials ETF, or IYJ, a sum that alone was three times the exchange-traded fund’s average daily turnover in the past year. The ETF rose 0.6 percent as of 1:34 p.m. in New York, headed for its best two-day advance in a month.

It’s a stark turnaround for a fund whose biggest holdings include Boeing Co. and 3M Co., industrial giants that’ve borne the brunt of selling as threats of retaliatory tariffs grew louder. The ETF has plunged 22 percent since a January high, some 30 percentage points more than a fund that tracks domestically focused small caps.

“What’s actually happening doesn’t seem to be as bad as anticipated and now’s the time to get back in,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “You sell the rumor, you buy the news.”

The industrial sector also got a boost from the latest U.S. jobs report, which showed hiring in the manufacturing sector increased by 36,000 positions in June, ahead of May additions and one of the biggest contributors to overall jobs growth -- a strong showing for an industry that was thought to be under pressure.

“For all of the noise, for all of the smoke that’s out there, there’s not actually a lot of fire on the industrials side,” McMillan said. “Things are continuing to go pretty well.”

That’s not to say the trade war won’t eventually cause pain for the sector. But for now, investors might’ve concluded that the selling had gone too far, according to Dave Lutz, head of ETFs at JonesTrading Institutional Services.

“IYJ saw a big cover buy around the open as traders bet that the tariff headlines were ‘priced in’ and a weaker dollar may benefit some of the multinationals in the fund,” Lutz said.

--With assistance from Sarah Ponczek.

To contact the reporters on this story: Carolina Wilson in New York City at cwilson166@bloomberg.net;Olivia Schaber in New York at oschaber1@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Jeremy Herron

©2018 Bloomberg L.P.