Eric Dutram: As we all know, retail sales normally pick up on Black Friday, but this time retailers are displaying a rally ahead of Good Friday as well. U.S. retailers rejoiced the departure of the harsh winter in March as the group clocked a better-than-expected 1.1% growth in retail sales. This marked the largest gain since September 2012, as per Bloomberg. Prior to this, retail sales nudged up 0.7% (revised) in February and fell 0.6% in January.
Among the 13 categories, which include auto dealers, furniture and clothing stores, 10 categories saw a move higher following the slump. This year a severe winter locked most Americans inside their homes making it difficult for them to shop.
Also, the chilling weather in most parts of the country led to high heating bills – a drag on low-income earners– while weakened stock markets and sluggish home prices hit high-income consumers too.
The onset of spring and the release of pent-up demand are now leading to optimistic retail numbers. The retail resurgence came at the right time when the market was in desperate need of a catalyst after being bogged down by the momentum sell-off and Tech-Biotech slide.
Investors should note that retail sales are considered as the barometer of U.S. economic growth. Thus, such a spike in retail numbers can indicate economic recovery. Moreover, consumer confidence surged in April to the highest level in about 9 months.
According to the National Retail Federation’s (NRF) monthly economic review published on Feb 6, 2014, retail industry sales (excluding automobiles, gas stations and restaurants) are projected to grow 4.1% in 2014.
In the current scenario, some consumer discretionary ETFs are well poised to benefit from this bullish trend ahead of Good Friday. The following four ETFs have top Zacks ETF Ranks, suggesting a solid run in the coming months as well.
In fact, this buoyant data provided an impetus for the broader U.S. market as evident from the 0.79% gain registered by the SPDR S&P 500 (SPY). Any of these could be better plays in the recovering economy and may continue to outperform in 2014 (see: all the Consumer Discretionary ETFs here):
Dynamic Leisure & Entertainment Portfolio ETF (NYSEARCA:PEJ)
PEJ seeks to tracks the Dynamic Leisure and Entertainment Intellidex Index. PEJ invests about $184.1 million of assets in 30 holdings. Stocks like Marriott International, Walt Disney and Hilton Worldwide Holdings are some of its top holdings, each with more or less 5% share in the basket.
The fund charges a relatively high expense ratio of 69 bps a year. PEJ added about 0.71% in the key trading sessions and currently has a Zacks ETF Rank #1 (Strong Buy) with a medium risk outlook.
First Trust Consumer Discretionary AlphaDEX Fund (NYSEARCA:FXD)
This is one of the more popular and liquid ETFs in the consumer space with AUM of $823.0 million and an expense ratio of 0.70%. The fund follows an AlphaDEX methodology and ranks stocks in the space by various growth and value factors, eliminating the bottom ranked 25% of the stocks (read: 3 Cyclical ETFs for an Improving Economy).
This approach results in a basket of 137 stocks that are invested across various market spectrums. Each security holds less than 1.35% of assets. Specialty Retail is the top sector with more than one-fifth allocation, followed by Media (13.2%) and Hotels, Restaurants and Leisure (13%).
The ETF has added over 0.55% following the release of retail sales data. FXD has a Zacks ETF Rank of 1 with a medium risk outlook.