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Consumer Confidence Jumps to 18-Year High: ETFs to Watch

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The confidence level among Americans reached an all-time high in April, suggesting strong economic growth in the coming period. The Consumer Confidence Index rose to 128, surpassing the April estimate of 125.6. As per the Conference board, the confidence level has touched an 18-year high. This is better than March, when the index stood at 127. Americans were optimistic about their finances and felt that cracking jobs has become comparatively easier.

Why Confidence is On Rise

The larger indication is that the U.S. economy is speeding up and gradually recovering from the slow start it had in the beginning of 2018. Unemployment hit a record low of 3.9% in April, which is the lowest since December 2000. The U.S. economy added 164,000 jobs in April,while wage growth remained sluggish. This was mainly because of unavailability of skilled employees and changing job preferences of the youth (read: April Jobs Data Mixed Bag: 3 Sector ETFs & Stocks to Gain).

As per a survey by JPMorgan, conducted on 1685 executives, 64% of entrepreneurs were willing to increase full-time employees while 76% talked about increasing compensation. So hiring in the second quarter is expected to rise, along with consumer spending. The corporate sector is also looking to increase profits with lower tax and a developed start-up ecosystem generating new business models along with revenues.

The real estate prices have increased due to shortage of available homes for sale. Consumer spending,however, has been tight with automobiles, appliances and houses saw decline in sales volume (read: Housing ETFs to Buy in 2018).

With rising consumer confidence it is expected that consumer discretionary ETFs will perform well. Investors who intend to benefit from this sector should focus on the ETFs mentioned below.

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

The fund seeks to provide investment results and performance of the Consumer Discretionary Select Sector Index. It has 81 stocks in its basket and has an AUM of $133 billion. As for industry outlook, Internet & Direct Marketing Retail, Media and Specialty Retail are the top three with holdings with31.2%, 18.6% and 17.7% allocations respectively. Amazon, Home Depot and Netflix are the top individual holdings with 21.9%, 7.3% and 5.2% respectively. The average daily volume of shares traded stands at 6.04 million. It has a nominal expense ratio of 13 basis points a year and a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook

Vanguard Consumer Discretionary ETF VCR

The fund tracks the performance of the US Investable Market Consumer Discretionary 25/50 Transition Index which measures the investment return of stocks in the consumer discretionary sector. The fund has amassed $2.75 billion of assets under its portfolio and comprises 367 holdings. As for sector outlook, Internet & Direct Marketing Retail, Restaurants and Movies & Entertainment comprises the top three with weightage of 25.7%, 9.1% and 8.9% respectively. It has a daily trading volume of 99,470 shares and an expense ratio of 0.10%. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Consumer Discretionary ETFs Head to Head: XLY vs. VCR).

iShares US Consumer Services ETF IYC

The fund seeks investment results of the Dow Jones U.S. Consumer Services Index which has exposure to U.S. companies distributing food, drugs, retail items and media. It has an AUM of $775 million and trades in a daily volume of 35,000 shares. Amazon, Home Depot and Netflix are the top three stocks with 18.6%, 6% and 4.5% allotment respectively. The dominant sectors in this fund include Retailing, Media and Consumer Services, with allocations of 47.6%, 19.8% and 16.8%, respectively. IYC consists of 160 holdings in its basket and has moderate expense ratio of 0.44%. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF FDIS

The fund tracks the results of MSCI USA IMI Consumer Discretionary Index by investing no less than 80% of assets in securities included in the index. It has 343 holdings in its basket among which Amazon, Home Depot and Netflix comprise the top three with 18%, 6% and 4.2% allocations, respectively. The fund has an asset base of $567.8 million in its portfolio. In terms of industry exposure Internet & Direct Marketing Retail, Media and Specialty Retail fill the top three slots with holdings of 26.3%, 18.4% and 16.7% respectively. Average daily traded volume of shares is 140,000. The fund charges an annual fee of 8 basis points and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

First Trust Consumer Discretionary AlphaDEX Fund FXD

The fund tracks the investment results of the StrataQuant Consumer Discretionary Index. It has high annual fees of 63 basis points and comprises 114 holdings. Also, the fund has $408.3 million in its asset base with daily traded volume of 103,700 shares. As for individual holdings Netflix, Lululemon Athletica and Amazon are the top three with none holding more than 2%. In terms of industry exposure, Specialty Retail, Media and Hotels hold the majority of the fund with 20.5%, 17.3% and 15.2% allocations, respectively. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.   

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