Consumer discretionary ETFs to shine as the US economy reopens
The world’s largest economy is steadily recovering from the downturn induced by the coronavirus epidemic. Notably, cyclical sectors such as industrials, financials, energy and consumer discretionary have received increased attention from investors this year. It should be noted that stocks in cyclical sectors mostly behave in tandem with prevailing economic conditions and when growth returns to normal levels, these sectors will automatically perform well.
The pandemic also appears to be under control in the United States. According to data compiled by Johns Hopkins University, the seven-day average of new infections was around 26,000 as of May 23, according to a CNBC article. Encouragingly, the number of cases has fallen to the lowest level since June 2020.
The accelerated rollout of the coronavirus vaccine has been the main factor that has helped take control of the worsening epidemic. Notably, more than 151 million Americans in the 18 and older age group or 58.7% of the U.S. adult population have received at least one dose of a COVID-19 vaccine as of May 12, data shows. from the Centers for Disease Control and Prevention (CDC) (as mentioned in a CNBC article).
The drop in the number of coronavirus cases has increased optimism among market participants for a faster recovery and reopening of the US economy. A growing number of people are expected to travel and go on vacation starting from Memorial Day weekend, which is also seen as the unofficial start of the summer season, according to the same article.
Additionally, a change in consumer behavior and shopping habits is observed as Americans visit stores to purchase merchandise like new clothes that signal normalcy. Large retailers like Walmart (WMT), Target (TGT), Home Depot and Macy’s have benefited from the reopening of the economy and the gradual return to normalcy.
In another encouraging development, Moderna (MRNA) recently announced an impressive update regarding mRNA-1273. The company announced that the Phase 2/3 study of its COVID-19 vaccine (mRNA-1273) in adolescents has achieved its primary goal of immunogenicity. Remarkably, there was no record of coronavirus cases among the participants who received the two doses of mRNA-1273.
According to the company, a 93% vaccine efficacy was recorded in HIV-negative participants from 14 days after the first dose by applying the CDC secondary case definition of COVID-19, which tested milder disease.
In addition, the latest public health guidelines issued by the CDC have relaxed restrictions on wearing masks during indoor and public gatherings. According to the new recommendations, people who are fully vaccinated do not need to wear masks or stay six feet from others during indoor or outdoor gatherings, according to a CNBC article.
Commenting on the current market scenario, Goldman Sachs, Managing Director Chris Hussey, recently said that “two macroeconomic factors may contribute to increased confidence in the recovery today: signs of rising inflation and signs of best placement, ”in a CNBC article. .
ETFs that could win
The latest US consumer confidence data looks correct, as the measure held steady in May after posting gains in April. The Conference Board’s consumer confidence index measure stands at 117.2 for the month of May, essentially unchanged from the April reading of 117.5. Additionally, the May reading missed the consensus estimate of 119.2, according to a Reuters poll.
Lynn Franco, senior director of economic indicators at the Conference Board, also reportedly said: “Overall, consumers remain optimistic and confidence is expected to remain resilient in the near term, as vaccination rates rise, as cases of COVID increase. -19 decrease further and the economy reopens completely. “
Moderate improvement in consumer confidence should boost the consumer discretionary sector, which attracts a significant share of consumer spending. In addition, the space includes businesses that sell goods and services, considered non-essential by consumers. It is worth noting that the sector is likely to gain a lot as the US economy gradually reopens and recovers from the pandemic-induced crisis.
Below we’ve highlighted the four most popular that target the broader consumer discretionary sector (see all consumer discretionary ETFs):
The SPDR Selective Consumer Sector Fund XLY
It is the largest and most popular product in the consumer discretionary space, with an AUM of $ 19.39 billion. It tracks the Selective Consumer Discretionary Sector Index. The fund charges 12 basis points (bps) in fees per year and carries a Zacks ETF Rank # 2 (Buy), with a medium risk outlook (read: ETFs in Focus as Amazon agrees to buy MGM Studio).
Vanguard Consumer Discretionary ETF Video recorder
This fund currently tracks the MSCI US Investable Market Consumer Discretionary 25/50 index. VCR charges investors 10 basis points in annual fees. The product has managed $ 5.94 billion in its asset base and is ranked 2 in the Zacks ETF, with a medium risk outlook (read: Will ETFs gain on Starbucks second quarter earnings in middle of the pandemic?).
First Trust AlphaDEX Consumer Discretionary Fund FXD
This fund tracks the StrataQuant Consumer Discretionary Index, which uses the AlphaDEX stock selection methodology to select stocks for the Russell 1000 Index. FXD has an AUM of $ 1.81 billion. It charges 63bp in annual fees and has a Zacks ETF Rank # 3 (Hold), with a medium risk outlook (read: US consumer confidence remains stable in May: ETFs in the spotlight).
Fidelity MSCI Consumer Discretionary Index ETF FDIS
This fund tracks the MSCI USA IMI Consumer Discretionary Index. The product has amassed $ 1.55 billion in its asset base. It charges investors 8 basis points in annual fees and carries a Zacks ETF Rank 2, with a medium risk outlook (read: Bet on these 5 top-ranked ETFs to boost portfolio returns).
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VIPERS-CONS DIS (VCR): ETF Research Reports
SPDR-CONS DISCR (XLY): ETF Research Reports
FT-CONSUMR DIS (FXD): ETF Research Reports
FID-CON DIS (FDIS): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.