Despite a pullback of close to 1% today in the markets, the consumer discretionary sector is reaching a fresh high. Analysts are weighing in on what they’re closely watching in the sector.
Market Cap Weighted ETFs
Todd Rosenbluth believes that market cap weighted ETFs is an important sector to focus on.
Rosenbluth of CFRA said on CNBC, “So if you’re looking at market cap weighted oriented ETFs like XLY, then the heavyweights performing well is what you really want to have. Some of the smaller names in the S&P 500, if those underperform, then something like the Invesco Equal Weight Portfolio (RCD) is going to lag. You really need to understand what’s inside the portfolio.”
A Generational Approach to Investing
Jay Jacobs of Global X Funds sees a more generational approach to discretionary sector investing, exhorting investors to consider the Millennials Thematic ETF (MILN), which “seeks to invest in companies that have a high likelihood of benefiting from the rising spending power and unique preferences of the U.S. Millennial generation (birth years ranging from 1980-2000),” according to the fund page.
“These companies come from a broad range of categories, including: social media and entertainment, food and dining, clothing and apparel, health and fitness, travel and mobility, education and employment, housing and home goods, and financial services.”
“There are tons of ETFs to play the consumer discretionary space. So if you want market cap weighted for its liquidity or its representativeness, that’s one way. But if you really want to laser-in on some of these high growth names, you can look at funds like Millennials, which targets specific companies that are really trying to grow and target a new generation for more specific exposure,” explained Jacobs.
Amazon’s Prime Day
Both analysts agree that Amazon’s Prime Day will have a profound effect on the consumer discretionary sector, likely positioning it ahead of rivals like Target and Best Buy.
“We are really expecting that the Prime Day is going to be a record-breaking event for Amazon. We’ve seen other companies like Target or Best Buy that are trying to get some of that traffic. But you really do see a spike when you look at the historical data. So if you like XLY, you really want to be looking forward to the consumer discretionary sector doing well with Amazon’s Prime Day,” Rosenbluth added.
When looking at smaller companies, Jacobs asks what they are doing to differentiate themselves over the Amazons of the world.
“They’re the innovative ones, not the small companies right now,” he said. “So it makes sense that some of these bigger names that are on the cutting edge of innovation are continuing to experience that out-sized growth. But there are smaller cap names that have started to IPO that are performing well. So I think there is some opportunity at the bottom.”
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