Consumer Discretionary ETFs in Focus for Holiday Shopping Season
November 21st at 11:03am by Tom Lydon
Consumer confidence is at a five-year high this November with prospects of stronger spending possible going into the holiday retail season. Consumer discretionary stocks and ETFs such as the Consumer Discretionary Select Sector SPDR Fund (NYSEArca: XLY) give investors targeted exposure to this area of the market without single company risk.
“This is a slow, uneven economy that continues to mend,”Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York said. “The confidence numbers reflect a little bit better job growth in the quarter and I think they reflect the news on housing that has really been pretty good.” [Tom Lydon on FOX Business: How to Play Black Friday]
The latest consumer confidence report was supported by cheaper gas prices, employment rising and value of homes also on the rise, reports Elizabeth Dexheimer for Bloomberg. The index rose to 84.9, beating analysts projections of 82.9% for the month of November. Inventories are also up 1.1% for the month of September regarding U.S. wholesalers. Furthermore, American’s rating of the economy is at the highest level seen in the past 4 years.
The gain in confidence is still shadowed by the fiscal cliff that is looming in January, and anticipated tax raises and government spending cuts are going to cut into any expansion.
“Thus far in 2012, some of the best performing sub-industries in the consumer discretionary sector are cable & satellite, homebuilding, household appliances and Internet retail. All of these are up more than 30% this year. In contrast, auto parts & equipment, casino & gaming, footwear and restaurants are all in the red. Interestingly, the S&P Capital IQ equity research team has positive fundamental outlooks on sub-industries within both the top (Internet retail) and bottom performing sub-industries (auto parts & equipment) listed above as well as others that have performed more in line with the broader market, such as general merchandise stores,” S&P Capital wrote in a note.
Consumer discretionary focused ETFs are a preferred way to gain exposure to this sector. ETFs within this sector are all varied, so investors need to do their homework and determine if the holdings in the fund are representative of the sector, and complimentary to their portfolio. [Retail ETFs Gear up for the Holiday Season]
The iShares Dow Jones US Consumer (NYSEArca: IYC) is currently rated “Overweight” by the agency. IYC holds discretionary stocks and information technology. The ETF’s largest sub-industry equity holdings are in movies & entertainment (11% of assets), cable & satellite (10%) and restaurants (10%). The ETF is up 19% this year.
The Vanguard Consumer Discretionary Index Fund (NYSEArca: VCR) is up 19% in 2012. The Vanguard portfolio also has high exposure to movies & entertainment (11% of assets), restaurants (11%) and cable & satellite (10%). VCR is unique in that it holds small and mid-cap shares. It holds 200 more stocks than XLY and has a low expense ratio of 0.19%. VCR is weighted “Marketweight” by S&P Capital. [Five Sector ETFs to Watch After Hurricane Sandy]
The Consumer Discretionary Select Sector SPDR Fund (NYSEArca: XLY) gives 14% of assets to movies and entertainment, restaurants (12%) and cable and satellite (12%). XLY is up 18% this year and costs 0.18%. S&P Capital gives it a ranking of “Marketweight”. [Retail Sector ETFs Rated Overweight by S&P]
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.