Although many might be worried about the approaching fiscal
cliff, it appears as though consumers are putting off concerns on
higher taxes and lower government spending, at least for now. In
fact, in the most recent University of Michigan consumer
sentiment index reading, the benchmark came in above
expectations at 84.9
.
This figure also marks a new post-2008 crash high for index,
suggesting that consumers are feeling better about the economy
now than at any other time since the market collapse roughly four
years ago. The fact that this comes in spite of the election,
government gridlock, and an official jobless rate near 8% is
nothing short of astounding and it clearly shows just how
resilient the American consumer can be (also see
Access the $30 Trillion Consumer Market with
These ETFs
).
Given this continued impressive performance by American
consumers, it may be time to shift portfolios into the segment.
For ETF investors, there are several choices in the space
including the ultra popular
Select Sector SPDR- Consumer Discretionary ETF (
XLY
)
.
This fund has over $3.3 billion in assets and sees solid
volume of over 6 million shares a day, suggesting incredibly
tight bid ask spreads. Obviously with figures like this and the
fund's age of over a decade, it has been a preferred choice in
the consumer cyclical ETF world (read
Spending is Surging, Stock Up on These ETFs
).
While XLY is a quality choice for broad discretionary
exposure, there are also a number of other
ETFs
in the space that can provide similar exposure but have probably
been overlooked by many investors. Any of these three ETFs below
could also play on the positive consumer trends, but may be able
to do so in a different-and potentially better performing-way
than what we see in the broad XLY fund by diving into specific
segments of this now in focus space:
PowerShares S&P SmallCap Consumer Discretionary
Portfolio (
PSCD
)
For a truly different look at the consumer market, an
inspection of the small cap space could be warranted. This can
easily be done with PSCD, a fund that tracks the S&P SmallCap
600 Capped Consumer discretionary Index.
This benchmark offers up exposure to a little over 100 stocks
and charges investors a reasonable 29 basis points a year in
fees. Volume and AUM is a little light though-along with
dividends-so total costs thanks to a wider bid ask spread need to
be taken into account (also read
Two Zacks #1 Ranked Consumer Discretionary
ETFs
).
From a holdings look, specialty retail accounts for roughly
30% of assets, while apparel and restaurants each make up 15%
each as well. It should also be noted that growth stocks account
for roughly 45% of the portfolio, while micro cap securities take
up a similar amount from a cap look, so this ETF could be
volatile.
SPDR S&P Retail ETF (
XRT
)
This ETF focuses on the S&P Retail Select Industry Index,
an equal weight benchmark of firms that operate in the retail
space. In this way, the fund offers concentrated exposure to the
biggest single industry in XLY.
The fund holds just under 95 stocks in its basket and does a
great job of spreading out assets with its equal weight technique
as no single firm makes up more than 1.5% of XRT. Volume and AUM
are also impressive for this fund, as nearly five million shares
change hands every day and more than $600 million is in the
product (also read
Lower Wal-Mart Exposure with These Consumer
ETFs
).
In terms of exposure, specialty retail accounts for nearly 60%
of assets, while department stores and internet/catalog retail
account for another 24% combined as well. Interestingly from a
cap perspective, the fund has just 20% in large caps and over 50%
in small and micro caps, so it does look to be tilted towards
pint sized securities.
PowerShares Dynamic Leisure and Entertainment ETF (
PEJ
)
While many investors might think of retail when looking at
consumer discretionary stocks, they shouldn't forget about the
leisure and entertainment segments either. These can easily be
accessed via the Dynamic Leisure and Entertainment Intellidex, a
benchmark that evaluates a variety of firms on a number of
fundamental criteria in order to put them in PEJ.
With this approach and focus, the fund holds just 30 stocks in
total, with just two stocks accounting for more than 5% of
assets-TWX and YUM. However, it should be noted that this product
has just $50 million in AUM and sees volume of about 40,000
shares a day, so bid ask spreads could be relatively wide for the
fund (read
Play a Consumer Recovery with These Discretionary
ETFs
).
In terms of industries, restaurants take up the biggest spot
with about 35% of assets, followed closely by hotels (20%), and
movies/entertainment (18%). Like others on this list, there is a
significant small cap component in this fund, as just over 50% of
assets go to these types of securities.
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PWRSH-DYN LE&EN (PEJ): ETF Research
Reports
PWRSH-SP SC C D (PSCD): ETF Research Reports
SPDR-CONS DISCR (XLY): ETF Research Reports
SPDR-SP RET ETF (XRT): ETF Research Reports
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