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Top 5 ETFs of the Best-Performing S&P 500 Sector in Q3

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Wall Street had an impressive run in the third quarter of 2020 despite a challenging September. In fact, the market witnessed the best August for the indices of Dow and the S&P 500 since 1984 and 1986, respectively. Moving on, the Dow Jones Industrial Average has gained around 7.6% during the third quarter. Moreover, the S&P 500 index rose nearly 8.5% with the Nasdaq Composite index’s increase of around 11% in the same period.

The U.S. economy was reopening in phases and there was a massive Fed and government stimulus to combat the pandemic-led crisis, which was boosting investor optimism in the third quarter. Moreover, the third quarter witnessed rise in U.S. manufacturing activity to nearly a two-year high in August owing to solid new orders. The jobs data, which showed that the economy added 1.4 million jobs in August and unemployment rate dropped to 8.4% from 10.2%, indicated an improving economy. Encouragingly, about half the jobs that were lost during the pandemic have been restored. The housing sector also continued to be a bright spot in the U.S. economy amid the coronavirus crisis. All these factors kept investors upbeat.

However, in September, which is historically considered the worst month for stocks, markets witnessed disturbance. People rushed to book profits, may be due to worries over lofty valuations and the approaching elections. The aggravating coronavirus outbreak caught investors’ attention, making them increasingly apprehensive about another round of lockdowns. Investors also worried about the uncertainty surrounding additional U.S. fiscal stimulus package which shall be an absolute necessity for economic recovery.

Meanwhile, ten out of 11 S&P sectors were positive with the consumer discretionary sector leading with a rise of around 14.9% in the third quarter, per a CNBC article. The reopening of U.S. states came as a ray of hope for players in the consumer discretionary sector and gained investors’ attention. A number of restaurants and retailers started resuming business as restrictions were being relaxed in the United States. Notably, stocks within the cyclical sectors mostly behave in tandem with prevalent economic conditions and when growth returns to normal levels, these sectors automatically perform well.

Consumer Discretionary ETFs to Consider

The latest data on U.S. consumer confidence looks encouraging as the metric saw the biggest gain in 17 years in September, at a time when the labor market is also improving. The Conference Board's measure of consumer confidence index stands at 101.8 (the largest gain since April 2003), comparing favorably with August’s reading of 86.3. Moreover, September’s reading surpassed the consensus estimate of 89.5, per a Reuters’ poll.

The strengthening consumer confidence can benefit the consumer discretionary sector, which attracts a major portion of consumer spending. Below, we have highlighted the ETFs that rose more than 18% in third-quarter 2020 and are focused on the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

Invesco DWA Consumer Cyclicals Momentum ETF (PEZ - Free Report) — up 36.8% quarter to date

The fund is based on the Dorsey WrightConsumer Cyclicals Technical Leaders Index. The index is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 securities from the NASDAQ US Benchmark Index. It has an AUM of $63.4 million, with an expense ratio of 60 basis points (bps) (read: 5 Best ETFs of Q3 With Room for Further Upside).

Amplify Online Retail ETF (IBUY - Free Report) — up 26.3%

The fund seeks to provide investment results that, before fees and expenses, correspond generally to the price performance of the EQM Online Retail Index. The index is a globally-diverse basket of publicly-traded companies that obtain 70% or more of revenue from online or virtual sales. With an AUM of $891.5 million, it charges 65 bps in fees (read: Beyond Clean Energy, 5 Best Global ETF Areas of Q3).

ProShares Online Retail ETF (ONLN - Free Report) — up 22%

The fund seeks investment results, before fees and expenses, that track the performance of the ProShares Online Retail Index. It lets investors tap into the potential growth of online retail by pinpointing retailers that principally sell online or through other non-store channels, and then zeroing in on the companies reshaping the retail space, like Amazon and Alibaba. It has an AUM of $303.4 million, with an expense ratio of 58 bps (read: 3 Reasons Why Big Techs Are a Buy Now: ETFs in Focus).

Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) — up 18.4%

The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Consumer Discretionary Index. With an AUM of $1.02 billion, it charges 8 bps in fees (read: A Biden Presidency in the Making? ETF Strategies to Follow).

Vanguard Consumer Discretionary ETF (VCR - Free Report) — up 18.3%

The fund seeks to track the performance of the MSCI US Investable Market Consumer Discretionary 25/50 Index. It has an AUM of $3.74 billion, with an expense ratio of 10 bps.

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