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Will ETFs Gain on Upbeat U.S. Consumer Sentiments in August?

Sweta Jaiswal, FRM

The latest final report on August’s U.S. consumer sentiment shows that the metric picked up in late-August, largely due to an improving economic outlook amid the coronavirus outbreak. The University of Michigan’s consumer sentiment index rose to 74.1 in August from 72.5 in July and 72.8 in the preliminary reading but was down from last August’s reading of 89.8, per a BloombergQuint article. The metric was also favorable in comparison to economists’ forecast of 72.8, per a Bloomberg’s poll.

The measure of current economic conditions increased to 82.9 in August from 82.8 in the previous month and the preliminary reading of 82.5. However, it compares unfavorably with last August’s reading of 105.3, per the source. Meanwhile, a gauge of consumer expectations came in at 68.5 in August from 65.9 in July, 79.9 a year ago and the preliminary reading of 66.5.

In this regard, Richard Curtin, director of the survey, has said that “although strong gains in consumer spending from the second-quarter lows can be anticipated, those gains will significantly slow without some additional spending programs to diminish the hardships faced by unemployed workers, small businesses, as well as support for state and local governments,” per a BloombergQuint article.

Worries about job prospects and business conditions have deeply impacted U.S. consumer confidence in August, slipping to the lowest level since 2014. The Conference Board's measure of consumer confidence index stands at 84.8, comparing unfavorably with July’s revised reading of 91.7. Moreover, July’s reading lagged the consensus estimate of 93, per a Bloomberg’s poll.

However, retail sales in the United States rose 1.2% sequentially in July 2020, following an upwardly revised 8.4% growth in June. July sales however missed the market expectation of a 1.9% rise. Consumer spending accounts for about 70% of U.S. economic activity and thus gives a clear picture of economic growth. According to tradingeconomics, the latest retail sales data showed that resurgence in coronavirus infections and a reduction in unemployment benefit checks put a brake on consumer demand.

ETFs in Focus

The outbreak is expected to have an impact on the consumer discretionary sector, which attracts a major portion of consumer spending. Below, we have highlighted the five most popular ones that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

The Consumer Discretionary Select Sector SPDR Fund XLY

This is the largest and most popular product in the consumer discretionary space, with AUM of $16.18 billion. It tracks the Consumer Discretionary Select Sector Index, holding 61 securities in its basket. 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: Hurricane Laura to Hurt/Boost These ETF Areas).

Vanguard Consumer Discretionary ETF VCR

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 292 stocks in its basket. VCR charges investors 10 bps in annual fees. The product has managed $4.02 billion in its asset base and carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: ETFs at Risk as U.S. Consumer Confidence Slips to Six-Year Low).

First Trust Consumer Discretionary AlphaDEX Fund FXD

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 119 stocks. FXD has AUM of $1.11 billion. It charges 64 bps in annual fees and has a Zacks ETF Rank #3, with a Medium-risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 254 stocks in its basket. The product has amassed $1.09 billion 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 (read: Starbucks' Q3 Earnings Top Amid Coronavirus Crisis: ETFs to Gain).

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Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
 
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
 
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