3 Top Ranked Consumer ETFs to Ride On Solid Data - ETF News And Commentary


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With the U.S. economy stepping up on broad-based gains, the appeal for the consumer sector is back. A flurry of upbeat economic data suggests a continuation of the bull run in this important market segment.

The economy strongly rebounded from the steep fall in the first quarter and expanded 4.2% in the second quarter, the fastest pace since the third quarter of 2013. The job market is showing clear signs of strengthening with jobless claims near the lowest levels since 2007.

Housing market recovery has gathered steam on firming home prices, rising demand, lower mortgage rates and an increase in housing inventory. Manufacturing activity expanded to highest level since April 2010 last month and oil prices have stabilized (read: Play the Manufacturing Boom with this Top-Ranked ETF ).

Further, the recent consumer sentiment survey has been extremely positive with the monthly Consumer Confidence Index, measured by the Conference Board, climbing to the highest level in seven years to 92.4 in August from the revised 90.3 in July. All these positive sentiments have spread optimism in the entire sector, compelling customers to spend more on products and services.

However, the latest reports suggest that households are still cautious on spending habits despite accelerated economic and jobs growth. This is especially true, as consumer spending, which accounts for more than two-thirds of the U.S. economic activity, surprisingly dipped 0.1% in July and savings rose to the highest level in more than one and half years.

Given sluggish spending but a brighter economic outlook, a look at the top ranked consumer ETFs could be a lesser risky way to tap the broad trends.

Top Ranked Consumer ETF in Focus

We have found a number of ETFs that have the top Zacks ETF Rank of 2 or 'Buy' rating in the broad consumer space and are thus expected to outperform in the months to come (read: all the Top Ranked ETFs ).

Among these top ranked ETFs, we pick the following three as good choices to tap into the space. This trio has enjoyed a strong momentum during strengthening fundamentals and has potentially superior weighting methodologies which could allow these to continue leading the consumer space in the months ahead.

First Trust Consumer Discretionary AlphaDEX Fund ( FXD )

This is one of the popular and liquid ETFs in the consumer discretionary space with AUM of $1.3 billion and average daily volume of 303,000 shares per day. It charges 70 bps in annual fees. 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 (see: all the Consumer Discretionary ETFs here ).

This approach results in a basket of 134 stocks that are well spread out across each security with none holding more than 1.48% of assets. The product has a certain tilt toward mid cap stocks at 49% followed by small caps (29%) and large caps (23%). Specialty retail is the top sector with nearly one-fourth of the portfolio, while media, and hotels, restaurants & leisure round off the top three with double-digit allocation. The ETF has added 4.7% in the past one month.

First Trust Consumer Staples AlphaDEX Fund ( FXG )

Like FXD, this ETF also follows AlphaDEX methodology but focuses on consumer staples stocks. Holding 38 stocks in its basket, the fund is moderately concentrated on the top 10 holdings at 45% of FXG. Mid caps make up for 57% share while large caps take the remainder with 6% going to small caps.

About 44% of the portfolio is allocated to food products in terms of sector, followed by food & staples retailing (19%) and beverages (16.4%). The fund has amassed $1.4 billion in its asset base while sees good volume of 405,000 shares a day on average. Expense ratio came in at 0.70%. The ETF is up 4.7% in the trailing one-month period.

PowerShares Retail Fund ( PMR )

This product provides exposure to the retail segment of the broad U.S. consumer space by tracking the Dynamic Retail Intellidex Index. It has accumulated $22.1 million in its asset base while trades in light volume of about 8,000 shares a day. The ETF charges 63 bps in fees per year (read: Retail ETFs Surging on Improved Q2 Earnings ).

In total, the product holds 30 securities with moderate concentration of 45.5% across the top 10 holdings. In terms of industrial exposure, specialty retail takes the top spot at 31%, followed by food retail (18%) and hypermarkets (13%). The fund is spread exposure across various market caps with 40% in large caps, 30% in small caps and the rest in mid caps. PMR returned over 4% over the past one month.

Bottom Line

While these products have seen rough trading from the year-to-date look, the trend is rebounding over the past few weeks and will continue to do so at least in the near term. This is because the U.S. economy is showing signs of life with strengthening fundamentals and rising sentiments in the broad economy.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs

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