Consumer ETFs Tick Down On Goods Data

August 24, 2012

A strong-headline durable goods number conceals head winds for consumer ETFs.

Consumer discretionary ETFs started off Friday on a soft note following the latest U.S. durable goods data, a departure from their year-to-date performance that has been nothing short of stellar.

The U.S. Commerce Department said Friday that durable goods orders rose 4.2 percent in July, the biggest jump since December, thanks mostly to a rise in commercial aircraft orders as well as demand for autos, MarketWatch reported. However, that headline number belies less encouraging aspects of the data series.

The transportation segment of the durables good universe is notoriously volatile, rising and falling dramatically from month to month, failing to capture what’s really going on with consumer discretionary demand. Typically, strong economic environments see demand for noncore items rise, while that same demand tends to dissipate when the market weakens.

Specifically, orders for the so-called core capital goods actually dropped in July for the second consecutive month, slipping 3.4 percent after declining 2.7 percent in June, according to MarketWatch.

As noted, funds that canvass the consumer sector eased on Friday, while the broader market ticked higher. The Dow Jones industrial average rose 28.80 points, or 0.22 percent, to 13.087.59.

ETFs Taking A Breather

ETFs that tap into the space could bear the brunt of market action Friday, although these funds have by and large outperformed the broad stock market so far this year, managing to steer clear of the jitters surrounding the health of the U.S. economy.

The plain-vanilla market-capitalization-weighted strategies in the space all have year-to-date returns of at least 15 percent and have rallied about 5 percent in the past month alone. Those include the:

  • $3.5 billion Consumer Discretionary Select Sector SPDR Fund (NYSEArca: XLY)
  • $278.6 million iShares Dow Jones U.S. Consumer Services Sector Index Fund (NYSEArca: IYC)
  • $515.9 million Vanguard Consumer Discretionary (NYSEArca: VCR)

XLY, IYC and VCR all hold names like McDonald’s Corp., Home Depot, Amazon and Walt Disney Co. as their top holdings. Home Depot stock, for instance, is up 34.6 percent year-to-date, while Amazon has gained more than 40 percent in the same period.

Even more complex methodologies such as PowerShares’ Dynamic Consumer Discretionary ETF (NYSEArca: PEZ) and the First Trust Consumer Discretionary AlphaDex Fund (NYSEArca: FXD) have performed well.

While PEZ is up 13.3 percent year-to-date, FXD climbed nearly 6.5 percent in the past month, and is now up more than 7 percent since the beginning of the year.

The latest data were, at the very least, putting a temporary halt to the funds’ upward march in price.


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