Consumer confidence in November rose to a new high suggesting
to many that we finally be out of the woods on this front. The
rise in consumer confidence is a good indicator of broad spending
heading into the holiday season and could also imply that
shoppers will open up their pocketbooks this year once more (
Spending is Surging: Stock Up on These ETFs
The upcoming holiday sales season is expected to be rewarding
for retailers as consumer sentiment remains positive,
unemployment rates moderate, and home prices continue to
Given this, a look to the consumer space could be in order,
especially if markets are rising since this is traditionally a
higher beta sector. With increasing income and employment,
consumers tend to spend more on traveling, hotels and
restaurants, cars and luxurious electronics and other
Investors should note that within the consumer discretionary
industry, sectors which have reported strong gains so far this
year are cable & satellite, household appliances and Internet
retail. On the other hand are sectors like auto parts &
equipment, casino & gaming, footwear and restaurants failed
to register growth this year, so a broader ETF look at the space
could be the way to go.
For investors that believe this might be the case, we have
selected a few of our favorite consumer-focused
this holiday season. Any of the three could make for interesting
plays in today's environment, especially if consumer confidence
and spending continues to rise as we close out the year:
Consumer Discretionary Select Sector SPDR Fund
Consumer Discretionary Select Sector SPDR Fund is by far the
most popular fund in the space tracking the S&P Consumer
Discretionary Select Sector Index. The fund is rich in AUM
managing an asset base of $3,738.8 million while volume is great
as well, trading more than 5.3 million shares a day on
The fund invests its asset base in a portfolio of 82 stocks
which are mostly large caps with a very small portion allocated
to mid and small cap stocks. Also, it is a moderately
concentrated fund with more than 45% of the asset base in the top
Among individual holdings, Comcast Corp takes the top spot in
the fund with a 6.81% share while Home Depot and Amazon occupy
the second and third position with asset allocation of 6.69% and
Among segments within consumer discretionary, media, specialty
retail and hotels restaurants & leisure get double-digit
allocations in the fund while among others the fund does not
invest more than 9.58%.
The fund also appears to be pretty reasonable from a cost
perspective as it just charges a fee of 18 basis points and
generates a yield of 1.42% in the process. The fund delivered a
return of 19.9% over a period of one year.
First Trust Consumer Discretionary AlphaDEX Fund
Another targeted play in the consumer space is First Trust
Consumer Discretionary AlphaDEX Fund. This fund represents a more
'active' approach to ETF investing, which employs the AlphaDEX
methodology. This indexing method ranks stocks on growth and
value factors in order to determine weightings as opposed to the
more traditional pure market cap technique.
This approach produces a fund with total holdings of 125
stocks, assets under management of $519.2 million, and a trading
volume of more than 60,000 shares per day (
Guide to the 25 Most Liquid ETFs
Currently, the fund has the most exposure to mid cap and large
cap securities with a very small portion invested in small caps.
From an individual security perspective, the fund is pretty well
spread out with the top 10 holdings making up just 15.4% of the
Top holdings include GameStop Corporation, Dillard's, Inc and
LKQ Corporation. The fund charges a hefty expense ratio of 70
basis points. Nonetheless, the fund has performed well in the
past one year, delivering a return of 8.58%.
Given the promising trends for cyclical stocks at this time,
some investors may want to consider buying into this consumer
discretionary ETF for the short term. If the economy continues to
rebound, we could see further gains in the space making this a
potentially good time to get into this surging sector.
Market Vectors Retail ETF (
To directly target a recovery, a look towards retail stocks
could be the way to go. The sector can be a big beneficiary of a
broad recovery and can be one of the first sectors to jump higher
when consumer confidence is rising.
To play this trend, investors can aim for the Market Vectors'
RTH which targets the Market Vectors U.S. Listed Retail 25 Index.
The fund has a shallow portfolio comprised of 26 securities with
approximately 68.5% exposure to the top ten holdings. This
exposure is more focused on large cap and mid cap companies, with
giant caps taking up most of the spots.
The fund trades with a volume of 73,800 shares a day, and has
assets under management of $21.2 million. RTH charges an expense
ratio of 35 basis points annually, making it a relatively
low-cost choice in the space.
Among individual holdings, Wal-Mart occupies the top position
in the fund at just over 13% of the total (
Lower Wal-Mart Exposure with These Consumer
). RTH does, however, offer a significant amount of exposure to
the online retail behemoth, Amazon, Inc, giving the fund a decent
exposure to e-commerce as well.
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AMAZON.COM INC (AMZN): Free Stock Analysis
FT-CONSUMR DIS (FXD): ETF Research Reports
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