5 Consumer Discretionary ETFs Rising To New Highs

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With the economy regaining momentum after a pandemic slowdown buoyed by the biggest vaccination drive and reopenings, the consumer discretionary sector looks like an exciting bet at present. This is because a strengthening economy, rapid vaccinations and better job prospects are supportive of economically sensitive sectors like consumer discretionary, which typically perform well in a maturing economic cycle.

A flurry of upbeat data has also spread optimism and bullishness at least in the near term in this important market segment. The United States added far fewer-than-expected jobs in September but the unemployment rate dropped to 4.8% from 5.2%, giving a reason to cheer.

Retail sales unexpectedly rose 0.7% in September, suggesting that Americans continued to spend at a solid clip despite the rising inflation. People splurged on new clothes for the back-to-school season or for their return to office while sales at restaurants and bars also rose. Airlines and other travel-related companies rebounded following the White House announcement that it will lift travel restrictions for fully vaccinated foreign nationals effective Nov 8, at land borders and for air travel.

Manufacturing activity further expanded in September from a record high in August while service activity rose at a slightly faster pace, underscoring stronger expansion in overall business conditions. Meanwhile, consumer spending accelerated in August even as soaring demand and snarled supply chains kept inflation high.

Given the improving economy, the Fed has signaled tapering of bond-buying as soon as this year followed by interest rate hikes as early as next year. But this doesn’t seem a problem for the sector as consumer discretionary stocks are well poised to benefit in a rising-rate scenario given the improving health of the economy, which will create a wealth effect.

As such, we have highlighted some ETFs from the space that hit a new peak in the latest trading session and will continue to perform well given that these products have a Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). These funds are enjoying strong momentum and have potentially superior weighting methodologies that could allow these to continue leading the consumer space in the months ahead.

Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)

This ultra-popular ETF tracks the Consumer Discretionary Select Sector Index with AUM of $20.5 billion and an average daily volume of around 4.7 million shares. Holding 63 securities in its basket, it has key holdings in Internet & direct marketing retail, specialty retail, automobiles and hotels, restaurants, and leisure. The fund charges 12 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard Consumer Discretionary ETF (VCR - Free Report)

This fund follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 294 stocks in its basket. It has heavy concentration on the top firm – Amazon (AMZN - Free Report) – at 22.9% share while the other firms hold no more than 11% of the assets. The product has managed $6.7 billion in its asset base and charges 10 bps in annual fees. In terms of industrial exposure, Internet & direct marketing, retail takes the largest share at 26.7% while automobile manufacturers, restaurants, and home improvement retail round of the next three spots. The ETF trades in an average daily volume of 62,000 shares and has a Zacks ETF Rank #1 with a Medium risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)

This fund follows the MSCI USA IMI Consumer Discretionary Index, holding 298 stocks in its basket. Internet & direct marketing retail makes up for the top sector with 26.6% share followed by specialty retail (19.8%), and hotels, restaurants & leisure (17.6%). The product has amassed $1.6 billion in its asset base while trading in a good volume of around 97,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #2 with a Medium risk outlook.

iShares U.S. Consumer Services ETF (IYC - Free Report)

This ETF offers exposure to U.S. companies that distribute food, drugs, general retail items and media by tracking the Russell 1000 Consumer Disc 40 Act 15/22.5 Daily Capped Index. It holds 174 stocks in its basket with heavy concentration on Amazon. The fund has amassed $1.3 billion in its asset base, and trades in a moderate volume of 77,000 shares a day on average. It charges 41 bps in annual fees from investors and has a Zacks ETF Rank #3 with a Medium risk outlook.

VanEck Vectors Retail ETF (RTH - Free Report)

This fund provides exposure to the 25 largest retail companies involved in retail distribution, wholesalers, online, direct mail and TV retailers, multi-line retailers, specialty retailers, and food and other staples retailers. It tracks the MVIS US Listed Retail 25 Index with double-digit concentration the two firms — Amazon and Home Depot (HD) — while the other firms hold no more than 5.2% share. The product has amassed $209.6 million in its asset base and charges 35 bps in annual fees. It trades in an average daily volume of 26,000 shares and has a Zacks ETF Rank #2 with a Medium risk outlook.

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