Discretionary ETFs: Attractive on Valuation | ETF Trends

Following a weak holiday shopping season, coupled with winter snow storms, weighed on retail names, the consumer discretionary sector, along with related exchange traded funds, is one of the most attractively priced U.S. equity sectors.

“With its recent pullback, the consumer discretionary sector is, according to our fair value estimate, more attractively priced on a relative valuation basis than any U.S. equity sector, other than the energy sector,” writes Morningstar fund analyst Robert Goldsborough.

The consumer discretionary sector is showing signs of life. Consumer confidence is rising and touched its highest level in six years as of March. Additionally, the sector may find support from a strengthening stock market, recovering housing market and improving job market.

The recent decline in the discretionary sector is attributed to the poor holiday season, the worst for retail since 2009, and the crippling winter weather that kept shoppers from leaving the comfort of their homes. [The Discreet Decline of Discretionary ETFs]

“Because of these recent headwinds, the consumer discretionary sector is relatively undervalued right now,” Goldsborough said. “It strikes us that some fairly short-term dynamics are pressuring a good number of consumer discretionary names, and we could see a number of those reversing (or at least ceasing to be drags) as 2014 progresses.”