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Will ETFs Gain on Steady U.S. Consumer Sentiment in August?

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The latest preliminary report on August’s U.S. consumer sentiment shows that the metric has remained mostly stable, largely due to concerns surrounding the aggravating coronavirus outbreak. The University of Michigan’s preliminary consumer sentiment index rose to 72.8 in August from 72.5 in July but was down from last August’s reading of 89.8, per tradingeconomics.

The measure of current economic conditions increased to 82.5 in August from 82.8 in the previous month. However, it compares unfavorably with last August’s reading of 105.3, per the source. Meanwhile, a gauge of consumer expectations rose to 66.5 from 65.9 in July and 79.9 a year ago. Notably, this index reflects the balance of respondents expecting better business conditions in the next six months, per the source.

In this regard, Richard Curtin, Surveys of Consumers chief economist, said that “lower interest rates by the Fed prompted more favourable buying, especially for homes, and the DC policy gridlock was responsible for the weaker outlook. The overall confidence in economic policies fell to the lowest level since Trump first entered office,” per tradingeconomics. He has mentioned that consumers have become more doubtful about the five-year economic outlook and are relatively more positive about buying conditions since April, per the sources.

Also, retail sales in the United States rose 1.2% sequentially in July 2020, following an upwardly revised 8.4% growth in June. July sales however missed the market expectation of a 1.9% rise. Consumer spending accounts for about 70% of U.S. economic activity and thus gives a clear picture of economic growth. According to tradingeconomics,  the latest retail sales data showed that resurgence in coronavirus infections and a reduction in unemployment benefit checks put a brake on consumer demand.

ETFs in Focus

The outbreak is expected to have an impact on the consumer discretionary sector, which attracts a major portion of consumer spending. Below, we have highlighted the five most popular ones that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

The Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)

This is the largest and most popular product in the consumer discretionary space, with AUM of $15.68 billion. It tracks the Consumer Discretionary Select Sector Index, holding 61 securities in its basket. The fund charges 13 basis points (bps) in fees per year and carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: S&P 500 Near Record Close: 3 Winning Sectors & ETFs).

Vanguard Consumer Discretionary ETF (VCR - Free Report)

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 292 stocks in its basket. VCR charges investors 10 bps in annual fees. The product has managed $3.85 billion in its asset base and carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Will Coronavirus Vaccine Optimism Drive These ETFs?).

First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report)

This fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index. This approach results in a basket of 119 stocks. FXD has AUM of $1.05 billion. It charges 64 bps in annual fees and has a Zacks ETF Rank #3, with a Medium-risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 244 stocks in its basket. The product has amassed $996.9 million in its asset base. It charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #3, with a Medium-risk outlook (read: Starbucks' Q3 Earnings Top Amid Coronavirus Crisis: ETFs to Gain).

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