Investors may be stuck on the negatives as markets trip at the start of the new year. However, there may be some opportunities in consumer-related sectors and exchange traded funds.
“Consumer spending and homebuilding look poised for solid growth in 2016,” First Trust Portfolios economists, led by Chief Economist Brian S. Wesbury, said in a research note.
Real, or inflation adjusted, consumer spending was up 1.5% to 2.0% in the fourth quarter while home building likely expanded at a robust 9% rate, according to FTPortfolios.
Additionally, consumers’ financial obligations – the share of their after-tax incomes needed to make recurring payments – is at the lowest levels since the early 1980s. Job growth, mildly rising wages and lower energy costs are also supporting consumers.
Investors can capitalize on a turnaround in consumer spending through discretionary sector-related ETFs. For instance, the First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD) takes a smart-beta approach to stock selections, targeting growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, along with value factors including book value to price, cash flow to price and return on assets.
Alternatively, there are a number of broad, traditional beta-index ETFs, including the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), Fidelity MSCI Consumer Discretionary Index (NYSEArca: FDIS) and Vanguard Consumer Discretionary ETF (NYSEArca: VCR).