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Consumer Discretionary ETFs in Focus as US Readies to Reopen

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The Wall Street has been rallying since the start of this week as investors are upbeat about the reopening of the U.S. economy in phases. In this regard, Eric Winograd, senior economist for fixed income at AllianceBernstein said “markets are increasingly looking toward this reopening and the gradual relaxation to some of the rules the lead people start economic activity again,” per a CNBC article.

The coronavirus outbreak has largely impacted the consumer discretionary sector, which attracts a major portion of consumer spending. Major retailers, restaurants and hotels in the United States had to shut down operations domestically and abroad. The reopening of the U.S. states has definitely come as a ray of hope for players in the sector.

Stores Reopening: A Silver Lining

A number of restaurants and retailers have started to reopen as restrictions are being relaxed in the United States. Starbucks (SBUX - Free Report) is already planning to reopen 85% of its company-owned stores this week. The coffee giant also plans to reopen at least 90% of its stores by early June. Going on, department store chain Kohl's Corporation (KSS - Free Report) has begun to reopen in some states like Arkansas, Oklahoma, South Carolina and Utah starting Monday, according to a Milwaukee Business Journal article.

The largest departmental store chain, Macy’s, Inc. (M - Free Report) , plans to bring 68 of its stores back to business on May 4, with another 775 stores scheduled to reopen in the next six to eight weeks. Also, the largest mall operator, Simon Property Group, Inc. (SPG - Free Report) planned to reopen 49 malls and outlet centers across 10 states by May 4. Per a CNN report, Tapestry (TPR - Free Report) , the parent company of Coach and Kate Spade, has plans to bring onboard nearly 40 stores in North America but, with only contactless curbside pickup. Meanwhile, all of Best Buy, Inc.’s (BBY - Free Report) 200 stores will be open to customers.

Is There a Shift in Shopping Habits?

The pandemic has resulted in some changes in the lifestyle and preferences of Americans. Most of the surveys have found that people are more interested in opting for online shopping rather than visiting a brick-and-mortar store for their purchases of essential food items and supplies. Even as the U.S. economy starts to reopen in phases and social distancing restrictions are being eased, people will try to minimize human-to-human contact.

In fact, non-store retail sales in March increased 3.1% sequentially and 9.7% year over year. Going by Signifyd’s Ecommerce Pulse data, there has been a 46% surge in overall e-commerce expenditures since late February. According to a Total Retail article, e-commerce sales are expected to grow more than 20% this year as there is an increasing number of first-time online shoppers.

Looking Forward

The retailers will be taking adequate safety measures to lure back customers to traditional brick-and-mortar stores. For instance, Simon Property Group will be providing CDC-approved masks and individual sanitizing wipe packets to customers on request and free-of-cost, per The Washington Post article. Moreover, they have made it mandatory for their employees and contractors to wear masks, according to the report. Temperature checks using infrared thermometers will also be provided with new limitations to one person per 50-square-feet being imposed per The Washington Post article. Going on, several measures like limited or no trials of apparels, social distancing measures, sanitization and wearing masks have been made a compulsion.

Highlighting this challenge plaguing the rebound of retailers, National Retail Federation has said, "retailers are preparing for new processes, consumer behaviors and legal requirements or restrictions, where there was once no playbook," per a CNN article.

ETFs to Keep a Tab on

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 $11.45 billion. It tracks the Consumer Discretionary Select Sector Index, holding 63 securities in its basket. From a sector-look, Internet & direct marketing retail takes the top spot with 29.4% of assets, followed by specialty retail (28.5%), and hotels restaurants & leisure (18.8%). The fund charges 13 bps in fees per year and has a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Amazon Crashes Post Q1: What Awaits for ETFs?).

Vanguard Consumer Discretionary ETF (VCR - Free Report)

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 295 stocks in its basket. Internet & Direct Marketing Retail takes the largest share at 34.2%, while restaurants and home improvement retail round off the next two spots. VCR charges investors 10 bps in annual fees. The product has managed about $2.53 billion in its asset base and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: Starbucks ETFs Gain on Q2 Earnings Despite Coronavirus Crisis).

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

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 283 stocks in its basket. The product has amassed $601.6 million in its asset base. 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 124 stocks. FXD has AUM of $154.7 million. It charges 64 bps in annual fees and has a Zacks ETF Rank #3, with a Medium-risk outlook.

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