As we all know, retail sales normally pick up on Black Friday,
but this time retailers are displaying a rally ahead of Good Friday
as well. U.S. retailers rejoiced the departure of the harsh
winter in March as the group clocked a better-than-expected 1.1%
growth in retail sales. This marked the largest gain
since September 2012
, as per Bloomberg. Prior to this, retail sales nudged up 0.7%
(revised) in February and fell 0.6% in January.
Among the 13 categories, which include auto dealers, furniture and
clothing stores, 10 categories saw a move higher following the
slump. This year a severe winter locked most Americans inside their
homes making it difficult for them to shop.
Also, the chilling weather in most parts of the country led to high
heating bills - a drag on low-income earners-- while weakened
stock markets and sluggish home prices hit high-income consumers
Unpopular Sector ETFs to Start 2014
The onset of spring and the release of pent-up demand are now
leading to optimistic retail numbers. The retail resurgence came at
the right time when the market was in desperate need of a catalyst
after being bogged down by the momentum sell-off and Tech-Biotech
The Momentum Stock Crash Puts These ETFs in
Investors should note that retail sales are considered as the
barometer of U.S. economic growth. Thus, such a spike in retail
numbers can indicate economic recovery. Moreover, consumer
confidence surged in
to the highest level in about 9 months.
the National Retail Federation
's (NRF) monthly economic review published on Feb 6, 2014, retail
industry sales (excluding automobiles, gas stations and
restaurants) are projected to grow 4.1% in 2014.
In the current scenario, some consumer discretionary ETFs are well
poised to benefit from this bullish trend ahead of Good Friday. The
following four ETFs have top Zacks ETF Ranks, suggesting a solid
run in the coming months as well.
In fact, this buoyant data provided an impetus for the broader U.S.
market as evident from the 0.79% gain registered by the
SPDR S&P 500 (
. Any of these could be better plays in the recovering economy and
may continue to outperform in 2014 (see:
all the Consumer Discretionary ETFs here
Dynamic Leisure & Entertainment Portfolio ETF
PEJ seeks to tracks the Dynamic Leisure and Entertainment
Intellidex Index. PEJ invests about $184.1 million of assets in 30
holdings. Stocks like Marriott International, Walt Disney and
Hilton Worldwide Holdings are some of its top holdings, each with
more or less 5% share in the basket.
The fund charges a relatively high expense ratio of 69 bps a year.
PEJ added about 0.71% in the key trading sessions and currently has
a Zacks ETF Rank #1 (Strong Buy) with a medium risk outlook.
First Trust Consumer Discretionary AlphaDEX Fund
This is one of the more popular and liquid ETFs in the consumer
space with AUM of $823.0 million and an 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 (read:
3 Cyclical ETFs for an Improving Economy
This approach results in a basket of 137 stocks that are invested
across various market spectrums. Each security holds less than
1.35% of assets. Specialty Retail is the top sector with more than
one-fifth allocation, followed by Media (13.2%) and Hotels,
Restaurants and Leisure (13%).
The ETF has added over 0.55% following the release of retail sales
data. FXD has a Zacks ETF Rank of 1 with a medium risk outlook.
SPDR S&P Retail ETF (
This product targets just the retail corner of the broad consumer
space by tracking the S&P Retail Select Industry Index. In
total, the fund holds 104 securities in its basket that are widely
spread across each component as none of these holds more than 1.32%
of total assets. The fund has been able to manage assets worth
In terms of sector holdings, Apparel Retail takes the top spot with
one-fourth share of the basket while Specialty Stores and
Automotive Retail round off to the next two spots. The ETF charges
35 bps a year in fees.
XRT gained about 0.49% in the key trading session and has a Zacks
ETF Rank of 2 or 'Buy' rating with a medium risk outlook.
PowerShares S&P SmallCap Consumer Discretionary
PSCD is a compelling choice for investors looking for a targeted
bet in the small cap space. The fund tracks the S&P Small Cap
600 Capped Consumer Discretionary Index, giving investors exposure
to U.S. consumer discretionary companies.
The fund holds a basket of 100 stocks and is relatively cheaper,
charging investors 29 basis points as annual fees. The top three
holdings of the fund are Live Nation Entertainment Inc (2.90%),
Wolverine World Wide Inc. (2.67%) and Buffalo Wild Wings Inc.
The fund was up 0.49% yesterday. The trend is expected to continue
at least in the short run, given the fact that the fund has a
favorable Zacks ETF Rank of 2 with a high risk outlook (see
3 Consumer Discretionary ETFs Set to Surge
From the chart depicted above, it is evident that retail or
consumer discretionary ETFs took a beating in the past month. All
four above-mentioned ETFs lost in the range of 4.6% to 7.2% as
against just 0.8% loss noticed in SPY. This was largely because of
high beta pain and record chills in the U.S.
However, this huge selling pressure should make the space
reasonably valued. In fact, popular retail ETF XRT currently trades
at forward P/E multiple of 17.25 times while SPY trades at a
forward P/E multiple of 15.55. On a P/B basis as well, XRT and SPY
are not much different. XRT's P/B ratio stands at 2.76 while SPY's
P/B ratio is 2.48 (as of April 14, 2014).
Investors should also note that both retail/wholesale and consumer
discretionary sectors will likely log double digit growth rate this
year and the next. Once the high-beta pain heals, we believe the
above-mentioned consumer ETFs are set to gain in the second
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FT-CONSUMR DIS (FXD): ETF Research Reports
PWRSH-DYN LE&EN (PEJ): ETF Research Reports
PWRSH-SP SC C D (PSCD): ETF Research Reports
SPDR-SP RET ETF (XRT): ETF Research Reports
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