Consumer spending, which accounts for nearly 70% of the U.S. economy, increased more than expected in June and investors can take advantage of the momentum with the best ETFs that hold consumer stocks.
Most estimates pegged consumer spending to increase at a rate of 0.3% in June, but the Commerce department said Tuesday that it grew by 0.4%, with growth mostly driven by household purchases.
Low interest rates continue to support a solid housing market, and low fuel prices help keep more money in the pockets of consumers, which they have evidently been spending on goods and services.
It’s not smart to bet against consumers, and when they’re in a spending mood it’s a good time for investors to think seriously about betting on the best ETFs that can benefit from positive trends that can translate into more spending in the third quarter.
Here are three of the best ETFs to take advantage of more consumer spending.
Best ETFs for an Uptick in Consumer Spending: First Trust Consumer Discretionary AlphaDEX (FXD)
Expenses: 0.63% or $63 for every $10,000 invested
One of the best ways to take advantage of increases in consumer spending is with an ETF like First Trust Consumer Discretionary AlphaDEX (NYSEARCA:FXD).
FXD seeks to track the StrataQuant Consumer Discretionary Index and employs enhanced indexing methods to make the most out of consumer stocks in the Russell 1000 Index.
In simpler terms, FXD is looking for momentum in the form of price appreciation of stocks such as top holdings Penske Automotive Group, Inc. (NYSE:PAG), Gap Inc (NYSE:GPS), and Burlington Stores Inc (NYSE:BURL), which could produce superior returns should consumer stocks continue to keep up the growth.
Best ETFs for an Uptick in Consumer Spending: iShares US Consumer Services (IYC)
Expenses: 0.43% or $43 for every $10,000 invested
A great way to tap into the current spending habits of the American consumer is with iShares US Consumer Services (NYSEARCA:IYC).
When consumers are spending, its hard to hold back the momentum of big consumer discretionary stocks like IYC top holdings Amazon.com, Inc. (NASDAQ:AMZN), Comcast Corporation (NASDAQ:CMCSA), and Costco Wholesale Corporation (NASDAQ:COST).
IYC seeks to track the Dow Jones US Consumer Services Index, which represents nearly 200 consumer cyclical companies that distribute food, drugs, general retail goods, and media services.
Best ETFs for an Uptick in Consumer Spending: Vanguard Consumer Discretionary (VCR)
Expenses: 0.10% or $10 for every $10,000 invested
If you want a dirt-cheap way to gain exposure to the consumer discretionary sector, one of the best ETFs to get the job done is Vanguard Consumer Discretionary (NYSEARCA:VCR).
When buying funds that passively track an index, it’s smart to buy one with low expenses — and the 0.10% expense ratio on VCR is about as low as it gets in the ETF universe.
VCR tracks the performance of the MSCI US IMI Consumer Discretionary 25/50 index, which represents nearly 400 stocks of consumer cyclical companies such as Amazon, Comcast, and Home Depot Inc (NYSE:HD).
Low expenses and steady tracking has helped VCR maintain performance ranks that have historically averaged near the top one-third of funds investing in consumer discretionary stocks.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. The No. 1 holding is his privately-held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.