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Consumer Confidence Hits 9-Year High: ETF Winners

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The Consumer Confidence Index rose to the highest level in nine years, indicating that U.S. consumer sentiment was largely positive on the domestic economic conditions and that they are ready to spend more. This robust reading is speculated to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. Thus, ETFs from the domain are also poised to gain from this encouraging trend.

Consumers Upbeat on Current Market Conditions

According to the Conference Board, Consumer Confidence Index rose from last month’s reading of 101.8 to 104.1 in September, hitting the highest level since Aug 2007. This was also significantly higher than the consensus estimate of 100.1. The two other indexes that seek to track consumers’ sentiments related to the present economic environment and in the days ahead also registered significant gains. The Present Situation Index and Expectations Index gained 3.2 points and 1.7 points to 128.5 and 87.8, respectively, this month (read: Online Shopping Gaining Traction: ETFs to Buy).

Consumers’ impressions on the labor market were also encouraging. According to the survey, the share of consumers who feel that jobs are “plentiful” rose to 27.9% from last month’s 26.8%. This was also the highest level in more than nine years. Moreover, the percentage of people expecting further increase in the number of jobs in the coming months also increased to 15.1% this month from 14.4% in August.

Regarding these robust readings, the Director of Economic Indicators at The Conference Board, Lynn Franco stated: “Consumers’ assessment of present-day conditions improved, primarily the result of a more positive view of the labor market. Looking ahead, consumers are more upbeat about the short-term employment outlook. Overall, consumers continue to rate current conditions favorably and foresee moderate economic expansion in the months ahead” (read: 3 Retail ETFs & Stocks Can Defy Soft Data).

Will This Boost Consumer Spending?

Consumer expenditure has witnessed a steady rise over the past few months despite being sluggish in the first half of the year. Though the Bureau of Economic Analysis’ “second estimate” showed that the U.S. economy expanded at a sluggish pace of 1.1% during the second quarter, consumer spending in the quarter jumped 4.4% from the year-ago level, rising at a fastest rate since the last quarter of 2014. Moreover, personal consumption expenditure rose 0.3% in July, increasing for the fourth-consecutive month, per the Commerce Department.

The healthy increase in consumer confidence is expected to have a positive impact on the domestic economy. The economy is currently anticipated to register encouraging growth in the second half of the year on the back of favorable labor market and other economic conditions. This expected rebound in addition with the upcoming holiday season is poised to lead consumer spending even higher in the days ahead (read: 4 ETFs to Gain from Healthy Consumer Spending).

4 ETFs to Gain

As mentioned earlier, consumer discretionary is one of the sectors likely to benefit significantly from an increase in consumer spending. Hence, we have highlighted four ETFs from the domain that are poised to gain. These funds also carry Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Should You Buy Retail ETFs Now?).

Consumer Discretionary Select Sector SPDR ETF XLY

This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. With an asset base of $9.2 billion, XLY is the largest and most popular ETF in its space. It holds 89 shares in its basket. Sector wise, Media takes the top spot with 23.2% of the assets, closely followed by Specialty Retail (19.8%). The product trades in a solid volume of 5 million shares per day and charges 14 bps in fees. The ETF gained 1% on Tuesday and has added 4.8% in trailing three months.

Vanguard Consumer Discretionary ETF VCR

This ETF follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds a large basket of 386 stocks. As far as sector allocation is concerned, Specialty Retail takes the top spot in the fund (18%) followed by Internet & Catalog Retail (16%) and Restaurants (10%). The product has managed to accumulate roughly $2.1 billion in its asset base so far and trades in a moderate volume of nearly 80,000 shares per day. It is dirt cheap with 10 bps in annual fees. VCR gained 0.8% on Tuesday and has returned 5.9% over the past three months.

iShares US Consumer Services (IYC - Free Report)

This fund provides exposure to the 183 firms by tracking the Dow Jones U.S. Consumer Services Index. The ETF has a certain tilt toward retailing, which accounts for 38.2% share while media (22.5%), consumer services (15.5%) and food & staples services (14.5%) round off to the top four. The product has amassed $870 million in its asset base and charges 43 bps in annual fees. Volume is moderate as it exchanges nearly 39,000 shares per day. The ETF gained 0.9% on Tuesday and has added 4.9% in the trailing three months.


This product offers exposure to the retail space by tracking the S&P Retail Select Industry Index. With an asset base of $578.3 million, XRT is the largest and most popular ETF in the retail space. It holds 98 shares in its basket. Sector wise, apparel retail takes the top spot with nearly one-fourth of the assets, followed by specialty stores (17.6%). The product trades in a solid volume of more than 4 million shares per day and charges 35 bps in fees. XRT gained 0.7% on Tuesday and has returned 7.5% over the past three months.

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