Despite the upbeat tone in the market following the decision of
the Fed to hold off on tapering, the drop in the U.S. consumer
sentiment comes as a slight downer.
Driven by fears of a possible government shutdown and higher
mortgage rates, consumer sentiment (as measured by Thomson
Reuters/University of Michigan) moved to 77.5 for September,
against a consensus report of 78. While this represents a modest
increase from last month's final figures, results are still
sluggish and suggest a poor trend for the consumer.
Why the Sluggishness?
The drop in consumer sentiment can also be blamed on surging
mortgage interest rates, which are currently lingering close to a
two-year high, posing a threat to growth. The Freddie Mac data
reveals that rate on a 30-year fixed mortgage loan has increased to
4.32% as of Sep 26, a level that represents a modest decline from
previous weeks, but that it still high when compared to last year.
Higher mortgage rates coupled with increasing home prices are
increasingly making it difficult to refinance and buy a new home,
thereby affecting the housing recovery in the U.S. (read:
Mortgage REIT ETFs: Is The Plunge Over?
Moreover, the lackluster pace of hiring is weighing down on
consumer purchases, which account for 70% of the economy.
Additionally, retail sales (as reported by the Commerce Department)
for the month of August increased nominally by 0.2% as against the
consensus estimate of 0.4%.
The Brighter Side
Still even with the sluggish sentiment, not all the data has been
bad. Personal income figures came in at the consensus and showed
month-over-month changes of 0.4%. Consumer spending also rose for
August up to 3.7% (yoy), so the poor sentiment hasn't really hit
spending levels at all (see:
all the Consumer Discretionary ETFs here
Consumer Discretionary ETFs in Focus
Despite the tug between optimism and pessimism, there are some
consumer discretionary ETFs which look promising and are worth
including in one's portfolio, but that could need closer inspection
after another sluggish sentiment report:
First Trust Consumer Discretionary AlphaDEX Fund
Though the fund is a bit pricey, charging investors 70 basis points
a year, FXD provides quality exposure in the consumer discretionary
space, with volumes suggesting that the fund is quite liquid. The
fund follows an AlphaDEX methodology and ranks stocks in the space
by various growth and value factors, eliminating the bottom ranked
25% of the stocks.
The product holds roughly 131 stocks, having double-digit exposure
in Specialty Retail and Media. The fund is highly diversified as
far as individual holdings are concerned, with no single stock
representing more than 1.8% of the portfolio.
The product has a Zacks ETF Rank of 1 or 'Strong Buy' and has
delivered an impressive return of 29.2% year to date and 9.6%
during the last three months (read:
3 Top Ranked Consumer ETFs to Buy Now
SPDR S&P Retail ETF (
XRT is one of the most popular ETFs in the retail space having an
asset base of $908.56 million and is highly liquid, which should
keep bid-ask spreads tight. The fund is pretty cheap, charging
investors an annual fee of just 35 basis points.
The product holds a basket of 99 securities, offering wide
diversification with no single firm taking up more than 1.6% of
XRT. As far as sector allocation is concerned, Apparel Retail
occupies the top spot with Specialty Stores and Automotive Retail
occupying the second the third positions, respectively.
The product has a Zacks ETF Rank of 2 or Buy and has added a return
31.1% year to date, while delivering 7.6% for the last three
iShares U.S. Consumer Services ETF (
The fund tracks companies in fields like Retail, Media, Hotels,
Textile and Apparel. The product manages an asset base of $442.66
million which it invests in 184 securities. General Retail and
Media capture the two positions as far sector holdings is concerned
having an exposure of approximately of over 37% and 29%,
The fund charges an annual fee of 46 basis points and is a little
light on volumes having an average volume of 33,448 shares a day
(see more in the
The fund too has a Zacks ETF Rank of 2 or Buy and has delivered a
decent return of 24.2% year to date and 7.7% over the past three
Despite the drop in the consumer sentiment for the month of
September, the positive Zacks ETF Ranks seen in these funds suggest
that more upside may be had in this space. However, recent activity
is certainly troubling, so make sure to keep a close eye on this
segment to see if the current trend continues, or if better
earnings can dull the impact of this sluggish report.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
FT-CONSUMR DIS (FXD): ETF Research Reports
ISHARS-US CN CY (IYC): ETF Research Reports
SPDR-SP RET ETF (XRT): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report