U.S. economy grew at an annual rate of 2.0% during the third
quarter of 2012, aided by robust consumer spending and housing
recovery. The growth came in better than the estimates and
up from 1.3% growth in the second quarter.
The report shows while the businesses are hesitant to increase
spending or investments due to the uncertainty related to the
fiscal cliff, Euro-zone recession and slow-down in the emerging
economies, the American consumers are now much more willing to
spend. (Read:
3 ETFs To Prepare For The Fiscal Cliff
)
Consumer spending in fact accounted for most of the increase
in GDP, as the purchases by U.S. residents of goods and services
increased 2.1% in the third quarter, compared with 1.0% increase
in the second quarter.
The consumer spending report released this morning by the
Commerce Department was also in-line with the positive trend.
Spending rose at a seasonally adjusted 0.8% rate in September,
its fastest rate since February.
Increasing personal consumption is a clear sign that the
Americans are now becoming more confident about the economy and
the job situation. This may be due to slight improvement in the
recent employment data and increasing signs of a housing
recovery.
Many economists believe that there is a strong relationship
between housing and consumer confidence. As consumer become more
optimistic about the value of their homes, they are more inclined
to open their wallets. (Read:
ETFs That Will Haunt Your Portfolio-If You Do Not
Buy Them
)
Further confirming the rising consumer confidence was the
University of Michigan's survey which reported consumer sentiment
rose from 78.3 in September to 82.6 in October; the highest since
September 2007- three months before the beginning of the
recession.
As the holiday season approaches, consumer spending may gain
further momentum in the coming weeks. So, now may be good time to
look at Consumer Discretionary and Retail ETFs, which may
outperform the broader market, due to the benefit from holiday
shopping. (Read:
Guide to 10 Great ETFs Yielding 7% or More
)
Market Vectors Retail ETF
(
RTH
)
RTH tracks the Market Vectors US Listed Retail 25 Index, which
is a rules based index designed to track the performance of 25 of
the largest US listed publicly traded companies.
The fund charges an expense ratio of 0.35% (capped through May
2013). In terms of sector exposure, Consumer Discretionary stocks
dominate with more than half of the assets invested.Top holdings
are Wal-Mart (14%), Amazon (10%), Home Depot (10%) and CVS
(6%).
The fund has Zacks ETF rank of 1 (Strong Buy) and risk rating
of 'Low'.
Consumer Discretionary Select Sector SPDR Fund
(
XLY
)
XLY tracks the Consumer Discretionary Select Sector
Index. Launched in December 1998, this fund is the largest
in the space now with more than $3.2 billion in AUM.
It is also among the cheapest choice in the space with the
expense ratio of just 18 basis points. Further, the ETF has a
decent dividend yield of 1.47%.
The ETF has highest exposure to Media stocks (32%), followed
by Specialty Retail (20%). Comcast, Home Depot, Disney and
McDonald are the top four holdings, each with more than 6% asset
weight.
The ETF enjoys Zacks ETF rank of 2 (Buy) and risk rating of
"Medium'.
First Trust Consumer Discretionary AlphaDEX Fund
(
FXD
)
FXD tracks the StrataQuant Consumer Discretionary Index, which
employs the Alphadex methodology to select stocks from Russell
1000 index. The index is a modified equal-dollar weighted index
which uses fundamental growth and value factors to select stocks.
Specialty Retail (26%), Media (20%) are among the top
sectors.
FXD enjoys the top Zacks ETF rank of '1' but with a 'high'
risk rating meaning that the ETF may outperform its peers but may
exhibit much higher volatility. The ETF is also slightly more
expensive compared to the other two with a net expense ratio of
70 basis points.
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FT-CONSUMR DIS (FXD): ETF Research Reports
MKT VEC-RETAIL (RTH): ETF Research Reports
SPDR-CONS DISCR (XLY): ETF Research Reports
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