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5 Discretionary ETFs in Focus on Low Consumer Confidence

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In January, consumer confidence fell to its lowest reading since July 2017 as financial market volatility and the 35-day long government shutdown affected sentiments. The Conference Board's Consumer Confidence Index dropped to 120.2 in January, down from 126.6 in December. The index has shed 17.7 points in the past three-months — the highest since 2011.

Per Lynn Franco, the Conference Board’s senior director of economic indicators, the decline in January has more to do with a temporary shock, rather than a precursor to significant slowdown in the coming months.   It seems to be true as the financial markets are showing signs of stabilizing buoyed by improved global market sentiment and resumption of government operations. Economists are expecting a rebound in the months ahead.

Partial Government Shutdown

On Jan 28, following a more than one-month long closure, the U.S. federal government began operations. Per a new government report, the shutdown is expected to cost about $3 billion to the economy.   A deadlock in passing a spending bill, wherein Trump demanded $5.6 billion funding for a border wall that was being opposed by the Democrats, was mainly the reason for the shutdown (read: U.S. Government Reopens: Tap High Beta & Momentum ETFs).

Job Market View

Consumers had mixed opinions on the job market. Those believing jobs are "plentiful" increased from 45.5% to 46.6%, while those claiming jobs are "hard to get" also increased, from 12.2% to 12.9%. The labor market differential, derived from data about respondents, who think jobs are hard to get and those who think jobs are plentiful rose to 33.7 for the month from 33.3 in December.

The outlook for the labor market was less cheerful.  The proportion expecting more jobs in the months ahead decreased from 16.6% to 14.7%, while those anticipating fewer jobs, increased from 14.6% to 16.5%.

Mixed views were observed with regard to the income prospects. While the percentage of consumers expecting an improvement declined from 22.4% to 18.2%, the share expecting otherwise also declined from 7.6% to 7.1%.

Assessment of Business Conditions

While consumers’ evaluation of current business conditions was little changed from December, optimism surrounding the short-term outlook was more pessimistic. The percentage of consumers expecting that business conditions will improve over the next six months decreased from 18.1% to 16.0%, while those expecting that business conditions will worsen increased from 10.6% to 14.8%.

Going Ahead

TheU.S. economy still looks upbeat buoyed by steady industrial production, a dovish Fed and a robust labor market. At 3.9%, the unemployment level is near its lowest level in five decades (read: Industrial ETFs in Focus on Strong U.S. Manufacturing Output).

However, easing global economic growth and uncertainty looming over trade relations with China remains an overhang on the economy. Moreover, events like the recent shutdown are known to temporarily affect the economy. Per industry experts, a long-term solution to the current issue seems to be in jeopardy, raising concerns of further shutdown possibilities.

Consumer Discretionary ETFs in Focus

With a fall in confidence levels, consumer discretionary ETFs may find a hard time to manage gains. Against this backdrop, we highlight five consumer discretionary ETFs that have gained the most so far this year (as of Jan 29) (see: all the Consumer Discretionary ETFshere).

Amplify Online Retail ETF (IBUY - Free Report) — Up 13.4% YTD

The fund tracks the EQM Online Retail Index, which utilizes a rules-based methodology to select a globally diverse group of companies with 70% or more of revenues from online and virtual sales.  It comprises 41 holdings with Chegg Inc (CHGG) (4.1%) sitting at the top. The fund’s AUM is $295.0 million and expense ratio is 0.65% (read: Is Macy's Spooking You? 3 Retail ETFs & Stocks for 2019).

Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD - Free Report) — Up 8.8% YTD

The fund tracks S&P Equal Weight Index Consumer Discretionary comprising 66 holdings. The top position is occupied by eBay Inc (EBAY) with a weight of 1.7%. Its AUM is $68.5 million and expense ratio is 0.40%. Currently, RCD carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report) — Up 8.4% YTD

The fund tracks the S&P SmallCap 600 Consumer Discretionary Index comprising companies that are principally engaged in providing consumer goods and services that are cyclical in nature, including retail, automotive, leisure and recreation, media and real estate. It comprises 94 holdings with Wolverine World Wide Inc (WWW) being the top weight holder (3.2%). The fund’s AUM is $71.9 million and expense ratio is 0.29%. It has a Zacks ETF Rank #3 with a High risk outlook.

First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report) — Up 8.4% YTD

The fund tracks the StrataQuant Consumer Discretionary Index comprising 111 holdings. Among them, Caesars Entertainment Corp (CZR) is the top weight holder (1.8%). Its AUM is $298.1 million and expense ratio is 0.63%. Currently, it carries a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: U.S. Consumer Sentiment Hit by Shutdown: ETFs in Focus).

SPDR S&P Retail ETF (XRT - Free Report) — Up 7.1% YTD

The fund tracks the S&P Retail Select Industry Index comprising 95 holdings. Boot Barn Holdings Inc. (BOOT) sits at the top of the holdings with a weight of 1.5%. Its AUM is $327.4 million and expense ratio is 0.35%. The fund carries a Zacks ETF Rank #2 with a Medium risk outlook.

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