Consumer Health Down, Not Out and That Matters to This ETF

The U.S. consumer is taking some lumps at the hands of the novel coronavirus, but the country’s most important economic engine may be down, but not out. Improving consumer sentiment should bolster the Principal Millennials Index ETF (Nasdaq: GENY).

GENY tracks the Nasdaq Global Millennial Opportunity Index. This index seeks to capture the global spending and lifestyle activities of the largest generation ever, offering exposure to brand name companies specializing in social media, digital media, technology, healthy lifestyles, travel, and leisure. The companies will evolve over time as the spending patterns of millennials change as they age.

Fortunately for investors considering GENY, which is up 8.14% over the past month, there are reasons to believe in the U.S. consumer.

“Unlike the prelude to the financial crisis, consumers entered the pandemic in solid shape.  Household wealth stood at a record $118 billion at the end of 2019,” said BlackRock in a recent note. “While wealth clearly dropped in the first quarter, the rapidity of the equity market rebound has limited the damage. At the same time, consumer debt is low and falling. Personal debt is below 100% of disposable income, the lowest since the early 2000s. Not only are debt levels manageable but given near-zero interest rates the cost of servicing debt is the lowest since at least 1980.”

Other Encouraging Signs

How consumers are spending is relevant to the GENY thesis and to broader consumer health in the current environment.

“Apart from the level of consumption, equally important is where consumers spend. In many ways, the pandemic has served to accelerate pre-existing trends,” according to BlackRock. “Looking through U.S. credit card data reveals an obvious pattern: parts of the future are arriving faster than planned. Online sales channels have been capturing roughly 60% of wallet share, and market share is holding, even as lockdown restrictions start to fade.”

GENY allocates about 70% of its weight to consumer cyclical and communication services stocks, putting at the center of seismic shifts in consumer behavior.

Integral parts of the millennial-driven are shopping and entertainment consumption trends. Shopping and consumer trends are changing as more buyers rely on the convenience of online retailers to quickly and easily meet their discretionary needs. As the retail landscape changes, investors can also capitalize on the trend through ETFs that target the e-commerce segment.

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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.