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Consumer Discretionary ETFs to Bet on in June

Sanghamitra Saha

The consumer sector looks to be on the mend. Visa’s total U.S. payments volume fell at a much slower clip in May from the previous month. This gives a clear indication of recovering consumer spending as coronavirus-led lockdowns are lifted. All 50 U.S. states have reopened by now.

U.S. payments volume in May fell to 5% compared with an 18% plunge in April. Quarter to date, Visa posted an 11% drop in payments volume. Visa said that in aggregate recovery in international markets fell behind the United States in May. As expected, travel-related cross-border volumes declined 78% last month, while cross-border e-commerce continued to gain strongly and was up 18%.

Visa’s report came in line with the consumer confidence data for the month of May. U.S. consumer confidence gained, suggesting that the worst of the coronavirus-driven economic deterioration is probably a matter of the past.

Consumer spending is very important for U.S. economic wellbeing as it contributes 70% of the U.S. GDP. A measure of consumer confidence jumped to 86.6 this month from 85.7 in April, according to the Conference Board. Economists polled by Dow Jones expected consumer confidence of 82.3 in May (read: Time for Consumer ETFs as Americans Are Regaining Confidence?).

A few days back, the University of Michigan’s U.S. consumer sentiment index also came in at 73.7 for May, up from 71.8 in April and way higher than the Dow Jones estimate of 65. Bank of America has also started to see consumer spending inch higher after plummeting during the start of the coronavirus-led lockdown. A super-dovish Fed and government stimulus made this rebound in sentiment possible.

The improved sentiment is reflected in the homebuilding sector as confidence among U.S. single-family homebuilders rose in May with the National Association of Home Builders/Wells Fargo Housing Market Index rising seven points to 37 this month after a record decline in April. Sales of new U.S. single-family homes increased by 623,000 last month, beating estimates of 490,000, according to Dow Jones.

Along with some analysts, we too believe that the U.S. government’s CARES relief checks and extensive price discounting boosted consumers’ attitude toward buying. The hope for vaccine is also acting as a tailwind. The World Health Organization has recognised some 10 prime candidates as potential vaccines. There are more than 100 candidates lying in the pre-clinical stage.

ETF Picks

Against this backdrop, below we highlight a few consumer-oriented ETFs that could be beneficial for investors. These ETFs have gained considerably past month. These funds also have comparatively low P/E ratios, implying more room to run.

Notably, the highest P/E ratio (33.06X) is boasted in the space by ProShares Online Retail ETF ONLN while First Trust NASDAQ Global Auto Index Fund CARZ has it at the lowest at 10.02X.

SPDR S&P Retail ETF XRT – Up 17.8% Past Month; P/E: 11.42X

Consumer Discretionary Select Sector SPDR Fund XLY – Up 11.6% Past Month; P/E: 20.14X

First Trust Consumer Discretionary AlphaDEX Fund FXD – Up 18.8% Past Month; P/E: 12.86X

Invesco S&P 500 Equal Weight Consumer Discretionary ETF RCD – Up 14.9% Past Month; P/E: 15.34X

First Trust Nasdaq Retail ETF FTXD – Up 11.6% Past Month; P/E: 15.98X

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SPDR SP Retail ETF (XRT): ETF Research Reports
 
First Trust NASDAQ Global Auto ETF (CARZ): ETF Research Reports
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
 
First Trust NASDAQ Retail ETF (FTXD): ETF Research Reports
 
Invesco SP 500 Equal Weight Consumer Discretionary ETF (RCD): ETF Research Reports
 
ProShares Online Retail ETF (ONLN): ETF Research Reports
 
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