Through much of the first half of 2022, the consumer discretionary sector was one of the primary drags on the broader market with the likes of Amazon (AMZN) and Tesla (TSLA) hindering broader market and growth-heavy indexes.
That scenario is reversing significantly as the S&P 500 Consumer Discretionary Index jumped 16.70% in July. Still, the index is mired in a bear market as highlighted by a year-to-date loss of 20.35%, but recoveries have to start somewhere and July could mark the start of a rebound for consumer discretionary equities and exchange traded funds.
Add to that, consumer discretionary ETFs are relevant today due to shifts in how and where consumers are spending their money.
“We forecast that the current deviation in spending on goods and services will converge back to their pre-pandemic trends by mid-2023,” noted Morningstar analyst Dave Sekera. “This equates to a swing of about $450 billion, and this shift could even be larger. Many households may be saturated with goods across several categories in which consumers pulled forward future demand. In addition, consumers may seek to make up for services forgone during the pandemic.”
In other words, some of the following consumer discretionary ETFs may be valid considerations for the remainder of 2022.
Goldman Sachs Future Consumer Equity ETF (GBUY)
The Goldman Sachs Future Consumer Equity ETF (GBUY) is unique among ETFs in this category because it’s actively managed and not dedicated to consumer cyclical stocks. In fact, that’s GBUY’s second-largest sector allocation, not the top one. Still, GBUY, which is also one of the newer funds in this group could be a formidable idea over the long-term.
GBUY’s status as an actively managed fund and the point that it’s not all-in on consumer discretionary stocks imply the ETF has breadth and the ability to quickly adapt to new consumer trends – an important point because many of those trends are emerging today.
“With nearly five billion people under the age of 40 worldwide, Millennials, and increasingly, Generation Z, are the world’s most powerful consumer force,” according to Goldman Sachs Asset Management (GSAM). “Their collective income already eclipses that of all other generations and, as a result, they’re driving growth in spending and are set to dominate the consumer landscape for decades to come.”
VanEck Gaming ETF (BJK)
The VanEck Gaming ETF (BJK) is the original ETF dedicated to casino stocks, making it an obvious industry-level play among consumer discretionary ETFs. After all, spending money on gambling is the epitome of consumer discretionary spending.
There is some type of disconnect happening with many gaming stocks this year because while domestic casino revenue is on a torrid pace and Nevada is setting records, many BJK components are slumping amid high inflation and concerns that a recession could be deep.
Still, there’s opportunity here, particularly with gaming supplier stocks and the potential for industry consolidation to perk up.
“Clearly, the market remains focused on what's still to come, discounting the risk that inflation eats into budgets once consumers shift out of ‘summer travel/leisure’ mode, or that the fed proves unable to execute a soft landing. Ultimately only time will tell, though with the market seemingly discounting differences in geographic and customer exposure, we see relative value in manufacturers,” wrote Stifel analyst Jeffrey Stantial in a recent report.
Global X Millennials Thematic ETF (MILN)
The Global X Millennials Thematic ETF (MILN) has an obvious demographic focus, but the fund is applicable to a broad swath of investors because millennial spending trends are compelling and the demographic is more populated than baby boomers.
Due to its millennial tilt, it is arguably a cutting-edge consumer discretionary ETF, providing access to attractive trends, such as social commerce.
“Social commerce differs from traditional e-commerce because rather than shopping on dedicated e-commerce websites, it allows users to shop within the social media platforms that they use regularly. Such an approach reduces frictions, allows users to digitally comment or consult with friends, and enables hyper-targeted advertising and custom shopping experiences,” according to Global X research.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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