Despite the worries over Trump’s protectionist trade policy, Americans continue to be optimistic as evident from 18-year high consumer confidence in August. The Consumer Confidence Index, by the Conference Board, jumped to 133.4 - the highest level since October 2000 - from the revised 127.9 in July and is much above the expected 126.6.
The upbeat data underscores the economy's strong fundamentals and consumers’ enthusiasm to spend more. The historic tax cuts, steadily rising wages as well as booming economy led to lofty savings and increasing take-home pay that increased consumers’ power to spend more and will likely to do so in the coming months. Notably, consumer spending accounts for more than two-thirds of U.S. economic activity (read: 5 ETFs to Buy as Q2 GDP Growth Hits 4-Year High of 4.1%).
With unemployment near a two-decade low and U.S. stocks at record highs, increase in consumer confidence will drive growth of the economy going forward. GDP growth expanded 4.1% annually in the second quarter, representing the fastest pace of growth in nearly four years. With this, GDP expanded 3.1% for the first half of the year and is on track to hit the 3% annual growth. Trump said “We're on track to hit the highest annual growth rate in over 13 years."
Rising consumer confidence bodes well for household spending in the coming months and is expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. As such, investors could tap the encouraging trend in the basket form through consumer discretionary ETFs (see: all the Consumer Discretionary ETFs here).
Below, we have highlighted five of these that target the broad consumer market and have a Zacks ETF Rank #2 (Buy). These funds are enjoying strong momentum this year and have potentially superior weighting methodologies.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
This is the largest and the most popular product in the consumer discretionary space with AUM of $15.2 billion and average daily volume of around 5.3 million shares. It tracks the Consumer Discretionary Select Sector Index and holds 80 securities with higher concentration on the top firm – Amazon (AMZN - Free Report) – at 24.6%. Other firms make up for a nice mix with each holding no more than 7.40% of the assets. From a sector look, Internet & direct marketing retail takes the top spot with 33.4% of assets, followed by specialty retail (18.2%), media (17.2%), and hotels restaurants & leisure (12.5%). The fund charges 13 bps in fees per year and has gained 18% so far this year (read: 4 Sector ETFs That Crushed S&P 500 in Longest Bull Market).
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 341 stocks in its basket. Here again, it is concentrated on the top firm – AMZN – at 20.3% while other firms make up for no more than 6.04% of the assets. Internet & direct marketing retail makes up for the top sector with 28.1% share, followed by specialty retail (17.5%), media (17%), and hotels restaurants & leisure (14.6%). The product has amassed $671.9 million in its asset base while trading in good volumes of around 122,000 shares a day on average. It charges 8 bps in annual fees from investors and has gained 15.8% so far this year (read: ETFs to Ride High on Amazon's Soaring Q2 Profit).
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 109 stocks that are well spread out across components, with each holding less than 1.8% of assets. Specialty retail is the top sector with 19% of the portfolio while department store, movies & entertainment, and cable & satellites round of the next three spots with single-digit exposure each. FXD has AUM of $423.3 million and trades in volume of 91,000 shares per day on average. It charges a higher 63 bps in annual fees and has gained 4.8% in the year-to-date timeframe.
Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report)
The fund follows the S&P SmallCap 600 Capped Consumer Discretionary Index and holds 102 securities in its basket with none accounting for more than 2.9% of the assets. Here again, specialty retail is the top sector accounting for 28.3% of the portfolio while hotels restaurants & leisure, household durables and auto components also receive double-digit exposure each. The product has attracted $92.2 million in AUM while seeing paltry volume of 12,000 shares per day. The ETF charges 29 bps in annual fees and is up 17.4% so far this year (read: 4 Sector ETFs to Tap at New Highs).
Invesco DWA Consumer Cyclicals Momentum ETF (PEZ - Free Report)
This product tracks the DWA Consumer Cyclicals Technical Leaders Index. It holds 40 stocks having positive relative strength (momentum) characteristics, with each holding less than 5.9% of the assets. About 31.1% of the portfolio is dominated by specialty retail while hotel restaurants and leisure, textile apparels & luxury goods, and Internet & direct marketing retail round off the next three positions with double-digit exposure each. The fund has managed $73.9 million in its asset base while trading in a lower average daily volume of 15,000 shares. It charges 60 bps in annual fees and has added about 18.6% year to date.
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