If your investments in stocks and funds right now focus on the recovery, then ETF investing in some retail and consumer index funds should appeal to you. Some of these exchange-traded funds have been sleepy in 2010, but as consumer spending and consumer confidence both continue improve, now may be the best time to buy into these index funds. These ETFs include RXI, IYK, IYR, XRT, XHB, RTH, VCR, RCD, PEZ, PEJ and PMR.
Yes, unemployment still remains high — but if you’re not bullish, you want to strike while some of these discretionary stocks and ETFs are at the bottom. The cliche “buy low, sell high” is thrown around often for a reason!
With that in mind, here are 11 consumer-oriented ETFs to keep in mind. The top five components of each index fund in listed, as is the year-to-date performance for each ETF. Please note, however, that all component stocks are subject to change:
1 – iShares S&P Global Consumer Discretionary Sector Index Fund (RXI) ETF
As the name implies, the iShares S&P Global Consumer Discretionary Sector Index Fund (RXI) ETF focuses on discretionary spending stocks from automakers to entertainment companies to home improvement stocks. For this ETF, the top five RXI components include Toyota Motor Corp. (NYSE: TM), McDonald’s Corp. (NYSE: MCD), The Walt Disney Co. (NYSE: DIS), The Home Depot Inc. (NYSE: HD) and Comcast Corp. (NASDAQ: CMCSA).
Shares of the RXI ETF are up 8.4% year to date as of today’s market open, compared to gains of about 4.5% for the Dow Jones Industrial average as of this writing.
2 – iShares Dow Jones U.S. Consumer Goods Sector Index Fund (IYK) ETF
Though more of a consumer staples ETF than a discretionary index fund, the iShares Dow Jones U.S. Consumer Goods Sector Index Fund (IYK) ETF allows investors to play the consumer spending trend from another angle. Top components include The Procter & Gamble Company (NYSE: PG), The Coca-Cola Company (NYSE: KO), Pepsico Inc (NYSE: PEP), Phillip Morris International Inc. (NYSE: PM) and Kraft Foods Inc (NYSE: KFT).
The IYK ETF is up about 6.5% year-to-date, tracking slightly ahead of the market. However, as the economic recovery takes hold this consumer goods stock has the potential to move higher.
3 – iShares Dow Jones U.S. Real Estate Index Fund (IYR)
You can’t get any more big-ticket than real estate, and the iShares Dow Jones U.S. Real Estate Index Fund (IYR) ETF is an easy way to play both the commercial and residential real estate markets. Top components include Simon Property Group Inc. (NYSE: SPG), Vornado Realty Trust (NYSE: VNO), Public Storage (NYSE: PSA), Equity Residential (NYSE: EQR) and Boston Properties Inc. (NYSE: BXP).
This real estate index fund is up dramatically year to day. Specifically, the IYR ETF has tallied returns of about 17.2% from January 1, 2010 through today’s market open.
4 – SPDR S&P Retail ETF (XRT)
When you think consumer stocks, some of the biggest names that come to mind are retailers. It’s only natural then that a retail ETF would be a strong play for any investor banking on a resurgence in spending. The SPDR S&P Retail ETF (XRT) is a great example of a pure retail play.
Top components include Netflix Inc (NASDAQ: NFLX), Jos A Bank Clothiers Inc (NASDAQ: JOSB), Caseys Gen Stores Inc. (NASDAQ: CASY), Anntaylor Stores Corp (NYSE: ANN), and Gamestop Corp (NYSE: GME). As far as consumer ETFs go, XRT is one of the best – it has logged nearly 21% returns year to date.
5 – SPDR S&P Homebuilders ETF (XHB)
Want to play the real estate market but don’t want to worry about property managers? Then the SPDR S&P Homebuilders ETF (XHB) is perfect for you. Components include homebuilders and building supply stocks like Owens Corning (NYSE: OC), USG Corp. (NYSE: USG), Sherwin-Williams Co. (NYSE: SHW), Simpson Manufacturing Co Inc. (NYSE: SSD), and Lennar Corp. (NYSE: LEN).
The XHB ETF has been on a tear so far in 2010, racing up 25% since January 1. If housing prices have in fact hit the bottom and buyers are coming out of the woodwork, expect continued success for this homebuilders index fund.
Click the navigation below to see best consumer and retail ETFs 6 through 11!
6 – Merrill Lynch Retail HOLDRs (RTH)
If you think the top holdings of the SPDR retail ETF are a little too small potatoes, then consider the Merrill Lynch Retail HOLDRs (RTH) ETF. This index fund has some of the biggest retailers on the planet as its top 5 components: Wal-Mart Stores, Inc. (NYSE: WMT), The Home Depot Inc. (NYSE: HD), Amazon.com Inc. (NASDAQ: AMZN), Target Corp. (NYSE: TGT) and Walgreen Co. (NYSE: WAG).
The HOLDRs ETF is up just over 10% year to date, about double the broader market. Though these big-box components may not pack the punch of smaller retailers, this RTF ETF should provide more stable returns due to its blue chip holdings.
7 – Vanguard Consumer Discretionary ETF (VCR)
The Vanguard Consumer Discretionary ETF (VCR) has very similar components to the iShares consumer discretionary ETF. Top holdings include Amazon.com Inc. (NASDAQ: AMZN), McDonald’s Corp. (NYSE: MCD), The Walt Disney Co. (NYSE: DIS), The Home Depot Inc. (NYSE: HD) and Comcast Corp. (NASDAQ: CMCSA).
Despite the similar makeup of the top 5 components, the VCR ETF has a considerably better return year to date than its iShares counterpart. This consumer discretionary index fund has tallied returns of 17.5% since January 1.
8 – Rydex S&P Equal Weight Consumer Discretionary ETF (RCD)
Like the name implies, the Rydex S&P Equal Weight Consumer Discretionary ETF (RCD) doesn’t really like to play favorites. When you look at the top components of the company, they are only the largest holdings right now because the ETF hasn’t had a chance to rebalance just yet. Top holdings right now are Eastman Kodak Company (NYSE: EK), Lennar Corp. (NYSE: LEN), Sears Holdings Corporation (NASDAQ: SHLD) and Gannett Co., Inc. (NYSE: GCI).
You can see why Kodak is the top holding – this stock has soared about 50% year to date, so now it’s overweighted in the portfolio. Overall the RCD consumer ETF has returned about 17% since January 1, 2010.
9 – PowerShares Dynamic Consumer Discretionary Sector Portfolio (PEZ)
A good mix of consumer holdings should span multiple industries and stocks of all sizes. That’s exactly what the PowerShares Dynamic Consumer Discretionary Sector Portfolio (PEZ) ETF does. Top holdings include Sherwin-Williams Co. (NYSE: SHW), Nordstrom, Inc. (NYSE: JWN), Whirlpool Corp. (NYSE: WHR), Starbucks Corp. (NASDAQ: SBUX) and Viacom Inc. (Cl B) (NYSE: VIA-B).
This ETF has managed to have good success in 2010 that has dramatically outpaced the stock market in general. Specifically, the PEZ consumer discretionary index fund is up about 20% year to date compared to just 4.5% or so in the Dow Jones Industrial Average.
10 – PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ)
Another interesting PowerShares index fund that is designed to capitalize on consumer trends is the PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ) ETF. Top components include Marriot International Inc. (NYSE: MAR), Yum! Brands, Inc. (NYSE: YUM) Starbucks Corp. (NASDAQ: SBUX), Viacom Inc. (Cl B) (NYSE: VIA-B) and Scripps Networks Interactive Inc. (NYSE: SNI)
The PowerShares PEJ ETF is one of the best performing consumer index funds on the market right now in 2010. Tallying nearly 23% returns since the first of the year, PEJ is seeing a lot of momentum for investors.
11- PowerShares Dynamic Retail Portfolio (PMR)
Last but not least is a pure retail play for index fund investors, the PowerShares Dynamic Retail Portfolio (PMR) ETF. Top retail stocks in this index fund include Limited Brands Inc. (NYSE: LTD), Nordstrom, Inc. (NYSE: JWN), The TJX Companies Inc. (NYSE: TJX) Gap Inc. (NYSE: GPS) and Bed Bath & Beyond Inc. (NASDAQ: BBBY).
Thanks to the strong performance of the retailers in this ETF, the index fund has tallied impressive returns of about 20% year to date. That’s over four times as much profits as the broader market in the same period.
As of this writing, Jeff Reeves did not own positions in any of the ETFs named here.
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