ETFs That Do Well Even If Consumer Confidence Is Falling?

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September 18, 2013 3:09pm NYSE:FXG NYSE:PBJ

retail-shopping: As consumers, we don’t always do what we say we do. Consumer confidence is, by all accounts, down, but spending in some areas is up. According to the Michigan Index, U.S. consumer confidence slipped in August from


a six-year high. The Bloomberg Consumer Comfort Index, meanwhile, plummeted for four straight weeks to its lowest reading since April.

Yet interestingly, August auto sales were the strongest in over six years—proof, on some level, that low consumer confidence and optimism don’t portend weak consumer spending. But that doesn’t mean that we’re necessarily spending smartly—after all, lots of people spend money when they’re depressed—and with wages stagnant, high unemployment, and a record number of Americans on food stamps, we have plenty of reason to spend.

According to some, consumer confidence is unrelated to spending and is more closely aligned to our political affiliation. In fact, self-proclaimed Democrats and Republicans are showing the weakest correlation on the direction of the economy since 1990. (Source: Jamrisko, M., “Confidence Measures Show It’s the Politics, Stupid,” Bloomberg web site, September 10, 2013.)

Where zero indicates no trend and one shows them moving in step, the correlation between the confidence of Republicans and Democrats is 0.25 since Obama started his first term. During George W. Bush’s two terms, it was 0.55, and Americans of every political persuasion were in virtual agreement on the direction of the U.S. economy during the Clinton era at 0.95.

Up until the beginning of September, Democratic voters had been more confident overall than Republicans for 75 straight weeks. Their rose-colored glasses, on the other hand, couldn’t find the same disciplined focus when it came to personal finances. During those same 75 weeks, their views on personal finance trumped those of Republicans in only seven weeks—which may or may not make sense in light of the fact that of those who take home more than $75,000 a year, Republicans outnumber Democrats by 2.1 percentage points, down from 4.4 points in 2008.

While consumer confidence numbers on their own are an important measure, our views on income and personal finance may be more enlightening when it comes to trying to predict real consumer confidence and consumer spending.

Those who think consumer confidence and the personal finances of Americans are improving can invest in any number of consumer goods companies. One company that should benefit from both higher and lower consumer confidence is Winmark Corp. (NASDAQ:WINA). A retailer that buys, sells, trades, and consigns merchandise; most people know it as the owners of Play It Again Sports and Once Upon a Child. The company’s second-quarter earnings were up almost 30% year-over-year. In step, Winmark’s share price is up 26% year-to-date and almost 40% year-over-year.

For those who are uncertain about the direction of consumer sentiment and the U.S. economy but still understand there are some products Americans will purchase no matter what, you might want to consider consumer staple exchange-traded funds (ETFs) like First Trust Consumer Staples AlphaDEX (NYSEARCA:FXG) or Power Shares Dynamic Food & Beverage (NYSEARCA:PBJ).

Under an umbrella of an uncertain economic environment and political divergence, some consumer goods stocks and ETFs will continue to provide investors with interesting opportunities to grow their retirement portfolios.

This article is brought to you courtesy of John Whitefoot from the Daily Gains Letter.


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