The holiday season saw a weak start as early store openings,
large discounts and attractive promotional offers by many retailers
failed to drive budget-constrained consumers to shops.
According to the National Retail Federation (NRF), Thanksgiving
weekend sales dropped 2.7%, representing the first decline in seven
years while shoppers' average spending was 4% less than last year.
Further, comparable store sales in November rose 1.9%, falling
short of expectation of 2.7% growth, as per data from Thomson
As a result, core retail sales, excluding automobiles, food
services, gasoline and building materials, picked up at a slower
pace at 0.4% in November. The number is down from 0.7% growth
reported in October. The sluggish start could bring bad news for
many retailers, as holiday season sales account for a significant
proportion of their annual revenues (read:
3 ETFs For This Holiday Season
However, overall retail sales rose 0.7% in November led by a jump
in automobiles and Internet sales. This represents the largest
increase in five months and is above the revised 0.6% growth in
October. With this sluggish growth pattern, investors have turned
cautious on the retail sector in particular, but might want to look
at the broad consumer discretionary space instead.
Broad Consumer Looks Better
A number of encouraging data in some key areas continue to fuel
optimism in the consumer discretionary space in the holiday season
and approaching the New Year. The labor market is showing clear
signs of healing, housing market is on the recovery path and oil
prices are at moderate levels (read:
Is This ETF a Better Bet in the Consumer Space?
In fact, recent consumer sentiment surveys have been extremely
positive with the latest reading surpassing expectations and being
the highest since July. The initial reading in the Thomson
Reuters/University of Michigan survey came in at 82.5 for December,
a whopping increase from 75.1 in November and well above the
consensus estimate of 76.0.
This has spread bullishness in the entire sector, compelling
customers to spend more on discretionary products and services.
Further, according to
Zacks Earnings Trends
, earnings in the consumer discretionary sector will likely grow
9.7% in the fourth quarter, much higher than the 0.7% expected
earnings growth for the retail sector.
For investors seeking to take advantage of the strong trends in the
broad space, a look at the top ranked consumer ETFs could be a less
risky way to tap into consumer market, with a much smaller focus on
the retail space (see:
all the Consumer Discretionary ETFs here
Top Ranked Consumer ETF in Focus
We have found a number of ETFs that have the top Zacks ETF Rank of
1 or 'Strong Buy' rating in the broad consumer space and are thus
expected to outperform in the months to come (read: all the
Among these top ranked ETFs, we pick the following three as good
choices to tap into the space. This trio has enjoyed strong
momentum in the year-to-date period, and has potentially superior
weighting methodologies which could allow these to continue leading
the consumer space in the months ahead.
PowerShares Dynamic Leisure and Entertainment Fund
This fund tracks the Dynamic Leisure and Entertainment Intellidex
Index and holds a small basket of 30 US leisure and entertainment
companies. The product is pretty well spread out across various
securities as the top 10 holdings account for nearly 46% of the
total assets. Small caps dominate the fund's return with nearly
half of the portfolio, while there is a definite focus on growth
In terms of industry exposure, the fund is heavy on restaurants
that make up for 46% share while hotels & leisure facilities,
and casinos & gaming round out the next two spots (read:
Gaming ETF (BJK) in Focus as Casinos Hit
). With AUM of $195.9 million, the fund charges slightly higher
fees of 63 basis points per year. PEJ has returned over 43% in the
year-to-date time frame.
First Trust Consumer Discretionary AlphaDEX Fund (
This is one of the more popular and liquid ETFs in the consumer
space with AUM of $975 million and expense ratio of 0.70%. 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.
This approach results in a basket of 134 stocks that are invested
across various market spectrums with large caps (41%), mid caps
(40%) and small caps (19%). Each security holds less than 1.7% of
Specialty retail is the top sector with nearly one-fourth
allocation, followed by media (13.16%), and hotels, restaurants
& leisure (9.52%). The ETF has added over 39% so far this year.
Guggenheim S&P Equal Weight Consumer Discretionary ETF
This fund provides equal weight exposure to 83 U.S. consumer stocks
by tracking the S&P 500 Equal Weight Consumer Discretionary
index. The ETF has amassed $140 million in its asset base while
charging 0.50% in expenses (read:
Overweight These Equal Weight ETFs in Your
Within the consumer discretionary sector, specialty retail takes
the top spot at roughly one-fifth of the total, followed by modest
allocations to media, and hotel restaurants & leisure. Here,
large cap and growth stocks take the majority of the allocation.
RCD also returned 39% in the year-to-date time frame.
These products have outperformed the broad sector fund,
Consumer Discretionary Select Sector SPDR Fund (
and this trend is likely to continue in the coming months.
Investors could definitely try these top ranked ETFs in the broad
space for diversified exposure with lower risk rather than
concentrating only on the retail names at this time.
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FT-CONSUMR DIS (FXD): ETF Research Reports
PWRSH-DYN LE&EN (PEJ): ETF Research Reports
GUGG-SP5 EW C D (RCD): ETF Research Reports
SPDR-CONS DISCR (XLY): ETF Research Reports
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