In terms of consumer spending, it feels like 2009 all over again as shoppers clamp down on their wallets. But retail exchange traded funds (ETFs) have managed to cope with the ever-changing tides.
How’s this for a bad omen? The Deloitte Consumer Spending Index tanked its hardest in July, mostly due to the anemic housing market. The index attempts to track consumer cash flow as an indicator of future consumer spending.
Timothy R. Homan for Bloomberg reports that consumer spending, pending home sales and factory orders were all weaker than projected in June, indicating that any momentum consumers had is on the wane.
Now might be an ideal time to play retail via ETFs instead of picking single stocks. Although several value-focused retailers have posted strong earnings for the second quarter, retail is not always such a predictable sector. For example, you’d think that with real estate being so depressed, home-improvement retailers wouldn’t deliver good earnings. But Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) both managed to have solid quarters. [Pockets Of Strength For Retail ETFs.]
Don Dion for The Street favors SPDR S&P Retail (NYSEArca: XRT) as a consumer-spending play. It’s not top-heavy; the largest component, Priceline (NYSE: PLCN), is 2.7% of the fund. It also gives broad exposure to the sector, including luxury jewelry stores, department stores, small chains and value-focused retailers (such as Priceline). XRT is up 6.3% year-to-date. [Consumer ETFs Go Global.]
Two other ways to get exposure to consumer spending are staples ETFs such as First Trust AlphaDEX Consumer Staples (NYSEArca: FXG) or PowerShares Dynamic Consumer Staples (NYSEArca: PSL). Both funds have exposure to companies whose products consumers will still buy, regardless of how tight their spending becomes. PSL has fewer holdings than FXG: 38 and 59, respectively. PSL also caps any one component at 3%; FXG’s heaviest weighting is 5%. In the last year, FXG has fared better, gaining 14.6%, although PSL is no slouch: it’s up 12.7% in the last year.
With retail as uncertain as it is now, the best bet is to monitor the trend lines. While many of these funds are still above the 200-day moving average, that could change if current trends hold. Sign up for alerts to be notified of a trading opportunity.
Visit our retail page for more stories about consumer spending.
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.