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4 ETFs to Ride on 16-Year High Consumer Confidence

After sluggish spending in recent months, consumers now appear to be optimistic as we enter into the second half of the year. This is especially true as consumer sentiment recovered to near record levels in July after falling for two consecutive months. The Consumer Confidence Index, as indicated by the Conference Board, surged to a 16-year high of 121.1 from the revised 117.3 in June and is much above the expected 116.5.

The upbeat data underscores the economy's strong fundamentals and consumers’ enthusiasm to spend more. These will likely boost spending in the coming months and keep the Fed on track to increase rates for the third time this year. Notably, consumer spending accounts for more than two-thirds of U.S. economic activity.

With unemployment near a 16-year low and U.S. stocks at record highs, increase in consumer confidence will accelerate growth in the economy going forward despite Trump’s chaos. Last month, the Commerce Department in its final assessment, figured out that U.S. economy expanded at an annual rate of 1.4% in the first quarter instead of 1.2% recorded in the second reading. The upward revision was the result of strength in consumer spending, which rose 1.1% in the first quarter. Though it was the weakest reading since the second quarter of 2013, spending doubled from 0.6% reported in the second estimate (read: ETFs to Win or Lose Post June Jobs Data).

Rising consumer confidence will no doubt increase spending power and is thus expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. As such, investors could tap the encouraging trend in the basket form through consumer discretionary ETFs.

Below, we have highlighted four of these that target the broad consumer market and have a Zacks ETF Rank of 3 or ‘Hold’ rating. These funds are enjoying a strong momentum this year and have potentially superior weighting methodologies.

Consumer Discretionary Select Sector SPDR Fund XLY

This is the largest and the most popular product in the consumer discretionary space with AUM of $12.6 billion and average daily volume of over 4.1 million shares. It tracks the Consumer Discretionary Select Sector Index and holds 87 securities with higher concentration on the top firm – Amazon AMZN – at 16%. Other firms make up for a nice mix with each holding less than 7.24% of assets. From a sector look, media takes the top spot with 24.9% of assets, followed by internet & direct marketing retail (23.8%), specialty retail (16.9%), and hotels and restaurants (14.2%). The fund charges 14 bps in fees per year and has gained 13% so far this year (see: all the Consumer Discretionary ETFs here).

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 366 stocks in its basket. Here again, it is concentrated on the top firm – AMZN – at 13% while other firms make up for no more than 5.74% of assets. Media makes up for the top sector with 23.9% share, followed by internet & direct marketing retail (20.2%), hotels restaurants & leisure (16.1%), and specialty retail (15.7%). The product has amassed $293.1 million in its asset base while trades in moderate volumes of around 68,000 shares a day on average. It charges 8 bps in annual fees from investors and has gained 13% so far this year.

Vanguard Consumer Discretionary ETF VCR

This fund follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 379 stocks in its basket with Amazon on the top with 12.2% allocation. Other firms hold less than 6% share. Internet & direct marketing retail, cable & satellite, restaurants, and movies & entertainment are the top four sectors accounting for a double-digit exposure each. VCR charges investors 10 bps in annual fees while volume is moderate at nearly 77,000 shares a day. The product has managed about $2.2 billion in its asset base and has gained 12.9% in the year-to-date time frame (read: Amazon Prime Day Hits Record: 5 Best ETF Deals).

PowerShares DWA Consumer Cyclicals Momentum Portfolio PEZ

This product tracks the DWA Consumer Cyclicals Technical Leaders Index. It holds 38 stocks having positive relative strength (momentum) characteristics, with each holding less than 4.6% of assets. About 29.1% of the portfolio is dominated by hotel restaurants and leisure while internet & direct marketing retail, and software round off the next two positions with double-digit exposure each. The fund has managed $27.4 million in its asset base while trades in a lower average daily volume of 23,000 shares. It charges 60 bps in annual fees and added about 10% year to date.

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SPDR-CONS DISCR (XLY): ETF Research Reports
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PWRSH-DW CON CY (PEZ): ETF Research Reports
FID-CON DIS (FDIS): ETF Research Reports
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