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What's in Store for Consumer Discretionary ETFs as Virus Spreads?

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Investors seem to be increasingly worrying about the rising number of coronavirus cases in the United States. According to Johns Hopkins University, 25,766 new coronavirus cases and 704 deaths were reported in the United States on Jun 18. Going by a CNN report, 10 states witnessed their highest daily number of cases during this week, whereas around two dozen states have seen surge in cases in comparison to the prior week. In fact, coronavirus cases in Oklahoma spiked around 110% from the same period last week (per a CNN report). Also going by the same report, the new model suggests that Florida has “all the markings of the next large epicentre” of the coronavirus outbreak. Resultantly, some government and health officials have paused reopening efforts for some time. 

In such a scenario, if the second wave of coronavirus infections emerges, then there can be a considerable impact on the consumer discretionary sector, which attracts a major portion of consumer spending. Major retailers, restaurants and hotels in the United States might have to shut down operations domestically and abroad, in case there is another lockdown to combat the outbreak. The reopening of the U.S. states had definitely come as a ray of hope for players in the sector.

The impact of the concerns over the rising coronavirus cases was visible on Wall Street, where Dow Jones Industrials Average index lost 0.2% and the S&P 500 remained flat on Jun 18. Notably, stocks like Kohl’s (KSS - Free Report) and Nordstrom (JWN - Free Report) that surged following the reopening of the economy lost ground in yesterday’s trading session.

Is There Any Silver Lining?

Art Laffer, an economic adviser to former U.S. President Ronald Reagan, recently stated that the United Sates is “bouncing out” of the coronavirus pandemic’s impacts on the economy “very rapidly”, going by a Fox Business article. Also, some recently-released date reports look encouraging. Retail sales in the United States climbed 17.7% sequentially in May, breezing past the forecast of an 8% jump. This marked the highest uptick on record in retail sales as the coronavirus-led lockdown eased. May’s retail sales figure topped the record 6.7% jump witnessed in October 2001, a month after the 9/11 terrorist attack, and easily surpassed analysts’ expectations of an 8.5% increase. Meanwhile, April’s plunge in retail sales was revised to be a little more moderate than previously reported (-14.7% versus -16.4%).

The latest preliminary report on June’s U.S. consumer sentiment shows that the metric has hit the highest level since 2016, largely due to falling unemployment levels and the reopening of economic activities. The University of Michigan’s preliminary consumer sentiment index rose more than 9% to 78.9 in June from 72.3 in May. June witnessed the second straight monthly increase in the metric.

ETFs in Focus

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 an AUM of $13.58 billion. It tracks the Consumer Discretionary Select Sector Index. The fund charges 13 basis points (bps) in fees per year and carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Best Retail Sales Growth in May: Sector ETF & Stocks to Win).

Vanguard Consumer Discretionary ETF (VCR - Free Report)

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index. VCR charges investors 10 bps in annual fees. The product has managed $3.08 billion in its asset base and carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Will ETFs Gain as U.S. Consumer Sentiment Improves in June?).

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. FXD has an AUM of $922.2 million. It charges 64 bps in annual fees and carries a Zacks ETF Rank #3, with a Medium-risk outlook.

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

This fund tracks the MSCI USA IMI Consumer Discretionary Index. The product has amassed $739 million in its asset base. It charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #3, with a Medium-risk outlook.

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