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ETFs at Risk as US Consumer Sentiment Hits Near 3.5-Year Low

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The latest reports on U.S. consumer sentiment show that the metric has dropped to nearly a three-and-a-half-year low in March, reflecting the impact of the coronavirus outbreak. The index of consumer sentiment slipped to 89.1 in March (lowest since October 2016) and also compared unfavorably with 101 in the previous month. The metric also lags analysts’ expectation of a final reading of 90.0 (per a Reuters’ poll).  Per Richard Curtin, chief economist for the Surveys of Consumers, the decline in consumer sentiment was the fourth-largest in roughly 50 years.

Coronavirus & the U.S. Economy

The world’s third most populous nation with 330 million residents, the United States has reported more than 140,000 confirmed cases, leaving behind China and Italy. To combat the outbreak, President Trump has extended the federal government’s guidelines for social distancing until Apr 30.

The rapid spread of the virus is leading to sweeping travel bans, and cancellation of large events as well as shutting down of schools, colleges, universities, restaurants and bars and shopping malls. In such a scenario, a slowdown in global economic growth looks inevitable. The job market is also expected to be severely hit as Americans are increasingly filing claims for unemployment benefits. Per the latest report released by the Labor Department on Mar 26, U.S. unemployment claims surged to a record 3.28 million last week (ending Mar 20). The number surpassed the count of 695,000 that was recorded during the financial crisis. With increased unemployment levels, the spending capacity of consumers will definitely be compromised to a greater extent.

In such a scenario, JPMorgan has trimmed its U.S. GDP estimates for the first half of 2020. It now expects the U.S. economy to shrink 10% in first-quarter 2020 in comparison to a 4% contraction estimated previously.

ETFs That Might Suffer

The outbreak is expected to have an impact on the consumer discretionary sector, which attracts a major portion of consumer spending. Below, we have highlighted the five most popular ones that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

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

This is the largest and most popular product in the consumer discretionary space, with AUM of $9.99 billion. It tracks the Consumer Discretionary Select Sector Index, holding 64 securities in its basket. The fund charges 13 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Is Coronavirus a Boon for Online Retail ETFs?).

Vanguard Consumer Discretionary ETF (VCR - Free Report)

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 296 stocks in its basket. VCR charges investors 10 bps in annual fees. The product has managed about $2.08 billion in its asset base and carries a Zacks ETF Rank #2 with a Medium risk outlook (read: Stimulus Hopes Triumph Over Virus: 5 Top ETF Picks for March).

Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 285 stocks in its basket. The product has amassed $535.7 million in its asset bas. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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 119 stocks. FXD has AUM of $146.8 million. It charges 64 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

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 64 securities in the basket. The product has amassed $44.5 million in its asset base and charges 40 bps in annual fees. It has a Zacks ETF Rank #3 with a Medium risk outlook.

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