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A Look at Consumer ETFs as Confidence Slips

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The escalation in trade and tariff war as well as geopolitical tensions took a toll on consumer confidence last month. U.S. consumer confidence fell the most in the nine months in September, according to the Conference Board. The index slipped to 125.1 last month from 134.2 in August.

Falling confidence might weigh on consumer spending, which accounts for more than two-thirds of U.S. economic activity. The latest data is in contrast to University of Michigan’s data, which showed that the consumer sentiment index rebounded modestly in September to a reading of 92 from a three-year low of 89.8 in late August.

However, the 11-year longest economic expansion supported by 50-year low unemployment rate and rising wages will continue to drive consumer spending. The latest bout of upbeat data seems to be encouraging, suggesting that the economy remained strong. Notably, U.S. retail sales rose more than expected in August boosted by purchases of new autos and building supplies while manufacturing activity hit a 5-month high in September (read: 5 ETFs to Ride on Highest Core U.S. Inflation Rate in a Year).

The combination of these factors is expected to have an impact on the consumer discretionary sector, which attracts a major portion of consumer spending. As such, investors should take a close look at consumer discretionary ETFs. Below, we have highlighted the five most popular ones that target the broad sector:

Consumer Discretionary Select Sector SPDR Fund XLY

This is the largest and the most popular product in the consumer discretionary space with AUM of $14.3 billion and average daily volume of around 3.9 million shares. It tracks the Consumer Discretionary Select Sector Index, holding 62 securities in its basket. From a sector look, Internet & direct marketing retail takes the top spot with 28.7% of assets, followed by specialty retail (25.7%), and hotels restaurants & leisure (21%). The fund charges 13 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Vanguard Consumer Discretionary ETF VCR

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 301 stocks in its basket. Internet & Direct Marketing Retail takes the largest share at 28.1% while restaurants and home improvement retail round off the next two spots. VCR charges investors 10 bps in annual fees, while volume is moderate at nearly 72,000 shares a day. The product has managed about $3.1 billion in its asset base and carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Low Volatility ETFs for Turbulent Times).

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 292 stocks in its basket. Internet & direct marketing retail makes up for the top sector with 30.2% share, followed by specialty retail (21.8%), media (17%), and hotels restaurants & leisure (20.1%). The product has amassed $723.8 million in its asset base while trading in good volumes of around 89,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #2 with a Medium risk outlook.

First Trust Consumer Discretionary AlphaDEX Fund FXD

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 97 stocks. Specialty retail is the top sector with 21.4% of the portfolio while hotels & entertainment services, media & publishing and diversified retail round of the next three spots with double-digit exposure each. FXD has AUM of $332.7 million and trades in volume of 69,000 shares per day on average. It charges 64 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: ETFs to Buy as Americans' Confidence Nears 19-Year High).

Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD - Free Report)

This ETF offers equal weight exposure to companies in the consumer discretionary sector by tracking the S&P 500 Equal Weight Consumer Discretionary Index. It holds 62 securities in the basket. The product has amassed $83 million in its asset base and charges 40 bps in annual fees from investors. It has a Zacks ETF Rank #3 with a Medium risk outlook.

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