Manufacturers Skirt Boeing Woes as Correlation Hits Two-Year Low

(Bloomberg) -- Boeing Co. may be set for its worst two-day slump in 10 years, but exchange-traded funds that track the industrials sector could be protected from some of the pain.

The relationship between the price of Boeing and the Industrial Select Sector SPDR Fund -- the largest ETF focused on manufacturers -- tumbled to the lowest since 2017, according to Macro Risk Advisors, which calculated correlation over three months. While the fund, which is known as XLI, slipped Tuesday, more manufacturers in a gauge of industrial companies rose than fell, according to data compiled by Bloomberg.

Manufacturers Skirt Boeing Woes as Correlation Hits Two-Year Low

“Given the idiosyncratic nature of the event, BA’s correlation to the overall Industrials sector has decreased,” Vinay Viswanathan, a Macro Risk Advisors derivative strategist, wrote in a note to clients.

Even as trading in Boeing-exposed ETFs surged yesterday as investors digested problems surrounding the company’s 737 Max jetliners, XLI saw its largest gain in nearly a month. About $25 billion is wrapped up in industrials ETFs, according to Bloomberg Intelligence, and more than a third of those assets are managed by XLI. Boeing is the fund’s largest allocation, but gains in other holdings help offset weakness in diversified funds.

The aircraft maker endured more pain on Tuesday amid a slew of country-wide bans. The stock plummeted more than 6 percent, extending its two-day slump to 12 percent. XLI slipped, but is flat over the same period.

Boeing’s woes did however weigh on airlines. United Continental Holdings Inc., Southwest Airlines Co. and American Airlines Group Inc. were all among the weakest stocks of the day, while online travel agencies such as Expedia Group Inc. were under pressure. Some large manufacturers including 3M Co. were also caught up in the selling.

It’s “something to keep our eye on,” said Allen Bond, a money manager at Oregon-based Jensen Investment Management, which manages $8 billion. He’s not yet concerned about contagion, despite holding United Technologies Corp., a supplier to Boeing, he said. “What’s going on with Boeing is specific to Boeing.”

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