The Long and Short of Shortages

An ETF investor guide to supply chain disruptions.

KEY TAKEAWAYS

• Supply chain bottlenecks are hitting sectors including labor, microchips and housing.
• Some of these disruptions will be around for the longer term, and investors should think about what they mean for portfolios.
• ETFs can help provide diversified, low-cost access to targeted sectors of the market to help offset the effects of supply-chain disruptions.

Odds are high that you’ve recently experienced COVID-related supply chain woes in some form or another. The disruptions hit home for me at the local bike store, where the owner told me they would have no Treks in my size until March 2022 — a full six months from now. The hold-up is about delays in manufacturing overseas and a backlog at West Coast ports.

Investors can no longer avoid supply chain disruptions, whether it’s surging electricity prices in China (crippling factory production), a widespread microchip shortage (creating a scarcity of new cars), or a lack of workers to perform key jobs, like driving trucks (sparking delivery delays for gasoline). It appears that the reverberations of the pandemic on the economy will be with us for longer than most economists expected, and in complex ways.

This article lays out the supply chain considerations that keep coming up in our conversations and how exchange traded funds (ETFs) can help investors navigate the backdrop.

FORCES AT WORK

The most recent jobs report from the U.S. Department of Labor showed 5 million fewer people at work compared with before the pandemic.¹ Many factors are at play: The pandemic has taken a significant toll on women, given fewer options for childcare.² And about half of those no longer working are over 55, may have retired and are therefore not likely to return to the labor force.³

While there are fewer workers, demand for hiring has never been stronger. Job openings are near record levels with 49% more vacancies than pre-pandemic and more people quitting to find new jobs.⁴ The share of workers quitting their jobs hit the highest level since 2000, with a quits rate of 2.9%.⁴ Wages have ticked up based on the supply and demand dynamics, something we expect to continue in the medium term.

WHAT IT MEANS FOR INVESTORS

Higher wages mean higher costs for companies, and we favor sectors and industries that are less sensitive to labor costs and have the highest profit margins. On this front, think technology companies, consumer discretionary companies, and financial companies, including banks, to help insulate portfolios against rising labor costs.

S&P 500 industries with the highest profit margins (less impacted by rising wages / input costs)

Click here to read the full article

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Originally Posted on October 15, 2021 – The Long and Short of Shortages

^© 2021 BlackRock, Inc. All rights reserved.

¹ U.S. Department of Labor, as of 9/3/2021

² COVID-19: Implications for business, McKinsey report, 10/6/2021

³ U.S. Department of Labor, as of 9/3/21

⁴ Job Openings and Labor Turnover Survey (JOLTS), as of 10/13/2021

⁵ Bloomberg, as of 9/30/2021

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