America’s consumers are fueling profits.
Many U.S. consumer spending and consumer confidence ratings are near record highs — hints there is still opportunity to invest in the consumer boom. Strong consumer spending is translating to profits across a host of companies. It can be difficult to parse these trends and find individual stocks that benefit, like Mastercard (ticker: MA), which is up 22 percent this year, fueled by credit and debit card swipes. Thankfully, there are a host of exchange-traded funds with a clear consumer flavor, so you can tap into the trend without having to research individual picks. Here are seven to consider.
Consumer Discretionary Select Sector Fund (XLY)
This consumer discretionary fund is the best one-stop shop to invest in companies that rely on American spending to grow and succeed. Components touch all manner of industries, from restaurant McDonald’s Corp. (MCD) to media company Netflix (NFLX) and sporting goods giant Nike (NKE). But one thing they all share is a dependency on Americans opening their wallets. This is a compelling strategy if you want to play the rise of the U.S. consumer across all fronts. And with consumer spending at very strong levels, it’s no surprise the XLY fund is up about 16 percent in the last year or so.
iShares US Consumer Goods ETF (IYK)
A twist on the prior fund is this iShares ETF that is focused solely on the products that consumers buy, without including merchants or distributors. There are more than 100 components, making up a “who’s who” list of the biggest brands in the U.S., including iconic makeup manufacturer Estee Lauder Companies (EL), auto giant General Motors Co. (GM) and video game publisher Activision Blizzard (ATVI). In a strong market for consumers, not only is there robust demand for these products but there is also the potential for bigger margins and pricing power — ultimately driving bigger profits all around for these companies.
S&P Retail ETF (XRT)
The flip side of products, of course, is to go directly to the merchants. That’s what the XRT offers, holding 85 of the biggest names in shopping, such as clothing retailer Abercrombie & Fitch Co. (ANF) and appliance and electronics store Rent-A-Center (RCII). The fund is a bit biased toward apparel retailers, with roughly 25 percent of assets in this subsector. However, that may not be bad if you want a direct play on consumers since clothing tends to be one of the top discretionary categories. The XRT has been sitting on a modest loss year-to-date, but remains a good way to tap into broad spending trends.
Amplify Online Retail (IBUY)
Eager to tap into U.S. spending with an online focus? IBUY has about 40 holdings including Amazon.com (AMZN) and eBay (EBAY), plus lesser-known names like car-sales platform Carvana Co. (CVNA) and fast-growing home goods site Wayfair (W), which went public at the end of 2014. This slice of the consumer marketplace is booming, as evidenced by this fund’s double-digit returns since Jan. 1 to outperform the Standard & Poor’s 500 index. Keep in mind a lot of that outperformance is because of just a few names — and just a few decliners could have a similarly negative effect on this fund given its limited holdings.
iShares U.S. Consumer Services ETF (IYC)
Another way to avoid the drag of brick-and-mortar retail is to focus on food and entertainment spending. For the last few years Americans have spent more at restaurants than at grocery stores. The IYC covers about 160 companies, including theme park and movie giant Walt Disney Co. (DIS), cable and internet provider Comcast Corp. (CMCSA) and hotelier Marriott International (MAR). Of course, the list isn’t completely free from all retailers — that subsector once again makes up a large part of the portfolio. But media, food service and other similar opportunities are more represented here than in some of the other consumer ETFs.
PowerShares S&P 500 Equal Weight Consumer Discretionary Portfolio (RCD)
Having a difficult time deciding which slice of the consumer spending pie is the most attractive? Well, there’s no reason you have to pick just one. This PowerShares ETF offers an equal-weight strategy that rebalances its 82 holdings regularly to try and hold an equal stake in each one. Of course, equally weighting your portfolio has its downsides — as evidenced by the fund’s modest loss year-to-date versus an up market. RCD’s philosophy isn’t about chasing big returns here but limiting risk. If you want a more cautious way to play retail, this truly diversified fund is worth a look.
Direxion Daily Retail Bull 3X Shares (RETL)
If you want to bet big on consumers, there’s RETL, which looks to deliver three times the movement of the retail sector. That makes it a play on many of the same stocks as the prior funds, only on steroids. It’s worth noting that the retail sector at large is down a bit, so RETL is sitting on a loss of about 9 percent since Jan. 1. So while the promise of triple the profits is great, it also means triple the losses if things don’t work out. This is a very aggressive fund, but one that can deliver big-time profit in a short-term market pop.
More from U.S. News
7 of the Best Stocks to Buy for 2018
10 Ways to Invest in Pharmaceuticals With ETFs
The Top 10 Investment Portfolio for Millennials
7 ETFs for a Summer Spending Boom originally appeared on usnews.com
