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Consumer Sentiment Jumps to 15-Year High: ETFs to Buy

Sweta Killa

Amid escalation of the U.S.-China trade war, Americans continued to be optimistic about the economy. Per the latest University of Michigan data, U.S. consumer sentiment jumped 5.3% — the highest since 2004 - to 102.4 in early May from 97.2 in April.

The upbeat data underscores the economy's strong fundamentals and consumers’ enthusiasm to spend more. Strong job market, steadily rising wages and improving economy led to higher savings and rising take-home pay that increased consumers’ power to spend more. The trend is expected to continue in the coming months. Notably, consumer spending accounts for more than two-thirds of U.S. economic activity.

Notably, the U.S. economy added jobs every month for 103 consecutive months, representing the longest-ever streak of job creation. The unemployment rate has dropped to 3.6% — the lowest in nearly 50 years — while wages rose at an annual rate of 3.2% in April, the ninth consecutive month of more than 3% growth (read: US Q1 GDP Growth Trumps Expectations: ETF Areas to Win).

Further, the U.S. economy expanded at a faster-than-expected rate of 3.2% in the first quarter of 2019, marking the best GDP growth to start the year since 2015. Additionally, a surge in oil price and the Fed’s decision of not raising interest rates this year after seven hikes over the past two years are also driving consumer confidence.

Below, we have highlighted five of these that target the broad consumer market and have a Zacks ETF Rank #2 (Buy). These funds are enjoying strong momentum this year and have potentially superior weighting methodologies.

Invesco Dynamic Media ETF PBS

This fund offers exposure to companies that are principally engaged in the development, production, sale and distribution of goods or services used in the media industry. It tracks the Dynamic Media Intellidex Index and seeks to offer capital appreciation by investing in companies that are selected on a variety of investment merit criteria. The approach results in a small basket of 30 stocks with each accounting for less than 8% of assets. The product has amassed $91.3 million in its asset base and charges 63 bps in annual fees. It has risen 19.1% (read: ETFs to Gain on Disney's Strong Earnings).

Consumer Discretionary Select Sector SPDR Fund XLY

This is the largest and the most popular product in the consumer discretionary space with AUM of $13.6 billion and average daily volume of around 5.8 million shares. It tracks the Consumer Discretionary Select Sector Index and holds 64 securities with higher concentration on the top firm – Amazon (AMZN) – at 25.1%. Other firms make up for a nice mix with each holding no more than 9.7% of the assets. From a sector look, Internet & direct marketing retail takes the top spot with 30.8% of assets, followed by specialty retail (24.8%), and hotels restaurants & leisure (20.5%). The fund charges 13 bps in fees per year, and has gained 18.4% so far this year.

Invesco DWA Consumer Cyclicals Momentum ETF PEZ

This product tracks the DWA Consumer Cyclicals Technical Leaders Index. It holds 39 stocks having positive relative strength (momentum) characteristics, with each holding less than 4.7% of the assets. About 29.6% of the portfolio is dominated by specialty retail while hotel restaurants and leisure, media and entertainment round off the next three positions with double-digit exposure each. The fund has managed $49.6 million in its asset base while trading in a lower average daily volume of 14,000 shares. It charges 60 bps in annual fees and has added about 18.1% year to date (see: all the Consumer Discretionary ETFs here).

iShares U.S. Consumer Services ETF IYC

This ETF provides targeted exposure to domestic consumer services’ stocks by tracking the Dow Jones U.S. Consumer Services Index. It holds 168 stocks in its basket, with heavy concentration on Amazon at 21.2% share while other firms account for no more than 4.7% of assets. In terms of industrial exposure, retailing makes up the largest share with 44%, followed by media & entertainment (23%), and consumer services (17.5%). The fund has amassed $915.9 million in its asset base, while trades in lower volumes of 49,000 shares a day on average. It charges 43 bps in annual fees from investors and is up 17.9% in the year-to-date timeframe.

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 293 stocks in its basket. Here again, it is concentrated on Amazon at 25.9% while other firms make up for no more than 7.13% of the assets. Internet & direct marketing retail makes up for the top sector with 32.3% share, followed by specialty retail (21%), and hotels restaurants & leisure (20%). The product has amassed $697.2 million in its asset base while trading in good volumes of around 185,000 shares a day on average. It charges 8 bps in annual fees from investors and has gained 17.7% so far this year (read: Should Consumer ETFs Fear U.S.-China Trade Clash At All?).

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