Will ETFs Gain on Upbeat US Consumer Sentiments in October?

Sweta Jaiswal, FRM
·4 min read

The preliminary report on October’s U.S. consumer sentiment shows that the metric rose in early October and hit a seven-month high, largely on an improved economic outlook along with reopening of economies. The University of Michigan’s preliminary consumer sentiment index rose to 81.2 from September’s final reading of 80.4, according to a Bloomberg article. The metric also beat the median estimate of 80.5, per a Bloomberg poll. It is important to note that the preliminary survey has covered responses received through Oct 14, according to the article mentioned above.

The measure of current economic conditions declined 2.9 points to 84.9 in October. Meanwhile, a gauge of consumer expectations was up 3.2 points to 78.8 in October. According to analysts, investor optimism for current economic conditions is largely fading due to uncertainty surrounding the second round of fiscal stimulus, aggravating coronavirus outbreak and slowing improvement in the job market. In this regard, Richard Curtin, director of the survey, has said that “Those concerns were largely offset by continued small gains in economic prospects for the year ahead,” per a Bloomberg article.

The survey report also reflected that consumers are expecting prices to rise 2.7% in the year ahead, up from 2.6% in September. Meanwhile, longer-term inflation expectations declined to 2.4%, the lowest since March, according to the Bloomberg article.

However, sales at retail and food services rose 1.9% in September from August and surged 5.4% on a year-over-year basis, according to the US Department of Commerce. In fact, retail sales rose a solid 3.6% in the third quarter compared with the same period a year ago. Also, spending was broad based in September as Americans splurged at bars and restaurants. American shoppers also spent heavily on items such as clothes, sporting equipment and cars.

ETFs in Focus

The outbreak is expected to have an impact on the consumer discretionary sector, which attracts a major portion of consumer spending. Below, we have highlighted the five most popular ones that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

The Consumer Discretionary Select Sector SPDR Fund XLY

This is the largest and most popular product in the consumer discretionary space, with AUM of $15.56 billion. It tracks the Consumer Discretionary Select Sector Index, holding 61 securities in its basket. The fund charges 13 basis points (bps) in fees per year and carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: ETFs to Win From the Netflix, Amazon Q3 Earnings Faceoff).

Vanguard Consumer Discretionary ETF VCR

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 290 stocks in its basket. VCR charges investors 10 bps in annual fees. The product has managed $3.74 billion in its asset base and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: Biden or Trump, These 4 ETF Zones Are Set to Gain).

First Trust Consumer Discretionary AlphaDEX Fund FXD

This fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index. This approach results in a basket of 119 stocks. FXD has AUM of $1.08 billion. It charges 64 bps in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 261 stocks in its basket. The product has amassed $1.02 billion in its asset base. It charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #3, with a Medium-risk outlook.

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Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
 
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
 
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