Americans are expected to shell out more this Valentine’s Day thanks to solid adoption of smartphones and an upsurge in spending by millennials (25-34 age group). Per the National Retail Federation, Americans will spend an average of $143.56 – the second highest in the survey’s 15-year history. This is up from $136.57 last year but lower than the $146.84 recorded in 2016. Total spending is expected to reach $19.6 billion, up from $18.2 billion last year. Only 55% of Americans are expected to celebrate Valentine's Day this year.
Higher spending is expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. It will also help in driving economic growth, which is already on a solid path, with 2.3% GDP expansion last year, unemployment at the lowest level of 4.1% since December 2000 and consumer confidence around a 17-year high. The economy has added jobs for 88 consecutive months, the longest streak on record, indicating that the job market has come a long way from the Great Recession, which ended in 2009 (read: Sector ETFs Set to Soar Post Strong January Job Data).
This coupled with the optimism over the biggest tax overhaul in decades has led to further bullishness. The new tax structure will create an economic surge and save billions in the corporate world, boosting earnings and reflation trade. Though inflation fears and the resultant speculation of faster-than-expected rates hike took a toll on the broader stock market last week, a higher interest rate is a positive for the consumer discretionary sector. This is because it means a stronger economy and a solid job market, which will create “wealth effect” resulting in higher consumer confidence.
Given this, investors seeking to capitalize the Valentine’s Day splurge should invest in consumer discretionary ETFs. Below, we have highlighted four excellent picks having a Zacks ETF Rank #2 (Buy).
First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report)
This follows an AlphaDEX methodology and ranks stocks in the space by various growth and value factors, eliminating the bottom-ranked 25% of the stocks. This approach results in a basket of 116 stocks that are well spread out across components, with each holding less than 1.7% of assets. Specialty retail is the top sector with 21.3% of the portfolio, closely followed by hotels, restaurants & leisure (12.8%), media (11.4%) and household durables (10.9%). FXD has AUM of $512.7 million and trades in volume of nearly 1 million shares per day on average. It charges 63 bps in annual fees.
PowerShares S&P SmallCap Consumer Discretionary Portfolio (PSCD - Free Report)
The fund tracks the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 107 securities in its basket with none accounting for more than 3.13% of the assets. Here also, specialty retail makes up the top sector at 27.9% while hotels, restaurants & leisure (17.5%), household durables (13.4) and auto components (11.2%) round off the next two spots. The product has attracted $73 million in AUM while sees a paltry volume of under 5,000 shares per day. The ETF charges 29 bps in annual fees (read: Consumer ETFs to Perk Up in 2018 on Wage Hikes?).
PowerShares Dynamic Retail Portfolio (PMR - Free Report)
This fund offers exposure to companies that are principally engaged in operating general merchandise stores such as department stores, discount stores, warehouse clubs and superstores; specialty stores including apparel, electronics, accessories and footwear stores; and home improvement and home furnishings stores. It follows the Dynamic Retail Intellidex Index, holding 30 securities in its basket, with each accounting for no more than 5.9% of assets. The fund has $11 million in AUM and charges 63 bps in fees per year. Average daily volume is paltry at 2,000 shares.
iShares Edge MSCI Multifactor Consumer Discretionary ETF
This ETF targets companies that have the potential to outperform the broad U.S. consumer discretionary sector and tracks the MSCI USA Consumer Discretionary Diversified Multiple-Factor Capped Index. Holding 44 stocks in its basket, it is concentrated on the top firm Amazon (AMZN - Free Report) at 15.8% of the portfolio while others hold no more than 5% of assets. The fund has accumulated just $3.2 million in its asset base and trades in a meager volume of under 500 shares. CNDF charges 35 bps in fees per year (read: What Rising Rates? Play These Cyclical ETFs).
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