Economists have been debating whether the US consumer will stay strong in the new year. The International Monetary Fund (IMF) expects global economic growth to be shy of 5% in 2022. Meanwhile, The Conference Board suggests:
“...the US economy will grow by 3.5 percent (year-over-year) in 2022 and 2.9 percent (year-over-year) in 2023.”
What these potential growth rates will exactly mean for different sectors on Wall Street is not easy to forecast. In addition, soaring inflation rates will likely lead to Fed action soon.
Therefore, short-term volatility and occasional short-term profit-taking should be part of the investing scene this year. Nonetheless, many analysts expect financials, real estate, manufacturing, and consumer discretionary companies to produce strong earnings in the coming quarters. So today’s article introduces two cyclical ETFs that deserve your attention.
1. Invesco S&P SmallCap Consumer Discretionary ETF
- Current Price: $107.94
- 52-Week Range: $86.02 - $126.08
- Dividend Yield: 0.58%
- Expense Ratio: 0.29% per year
According to metrics released by the US Bureau of Economic Analysis:
“Personal income increased $90.4 billion, or 0.4 percent at a monthly rate, while consumer spending increased $104.7 billion, or 0.6 percent, in November.”
Similarly, despite concerns over high inflation levels, the Consumer Confidence Index ended the year on a high note. In December, “at 115.8 (1985=100), up from 111.9 (an upward revision) in November.”
Thus, analysts expect the US economy to expand in the months ahead. Those readers who agree with that assessment could take a closer look at our first fund, namely the Invesco S&P SmallCap Consumer Discretionary ETF (NASDAQ:PSCD). It invests in small-capitalization (cap) US consumer discretionary firms. These companies typically operate in recreation, leisure, household durables, retail, automotive, real estate and media. The fund started trading in April 2010.
PSCD, which has 85 holdings, tracks S&P SmallCap 600 Capped Consumer Discretionary Index. The top 10 holdings account for about 30% of net assets of $49.6 million. In terms of sub-sectors, we see specialty retail (31.56%), household durables (16.71%), hotels, restaurants & leisure (11.84%), auto components (11.50%), textiles, apparel & luxury goods (9.87%).
Jewelry retailer Signet Jewelers (NYSE:SIG); car retailer Asbury Automotive (NYSE:ABG); builder of single-family homes Meritage Homes (NYSE:MTH); LCI Industries (NYSE:LCII), which provides components for OEMs (original equipment manufacturers) in the transportation market; and retailer of western style footwear and apparel Boot Barn (NYSE:BOOT) lead the names on the roster.
In the past 12 months, the ETF is up 22.6%, and hit an all-time high (ATH) in June 2021. Since then names in the fund have come under pressure. Forward P/E and P/B ratios are 9.63x and 2.52x. Interested readers could regard any further decline as an opportunity to buy into PSCD.
2. ALPS Global Travel Beneficiaries ETF
- Current Price: $25.02
- 52-Week Range: $23.08 - $27.31
- Dividend Yield: 0.56%
- Expense Ratio: 0.65 per year
Investors researching travel stocks might be interested to know that the Travel & Tourism sector in the US should grow over 28% in 2022, and contribute around $2 trillion to the economy. Furthermore, recent metrics suggest that between 2022 and 2026, the global travel market will likely grow by about $450 billion, at a compound annual growth rate (CAGR) of over 13.8%.
Therefore, our next fund, the ALPS Global Travel Beneficiaries ETF (NYSE:JRNY), comes from the sector investing in names that are part of the global travel industry. Such businesses include airlines, hotels, cruise lines, casinos as well as travel booking platforms and manufacturers that provide planes and components for airlines. As it started trading in September 2021, JRNY is a small ETF with limited trading history.
The fund, which has 75 holdings, tracks S-Network Global Travel Index. The leading 10 holdings account for close to 44% of net assets of $7.5 million. Consumer discretionary names have the highest slice with 46.25%. Next in line are industrials (27.90%), consumer staples (11.90%) and communication services (4.87%).
Travel and restaurant reservation platform Booking (NASDAQ:BKNG); hospitality heavyweights Marriott International (NASDAQ:MAR) and Hilton (NYSE:HLT), aerospace giant Boeing (NYSE:BA); integrated payments and financial services group American Express (NYSE:AXP); and entertainment giant Walt Disney (NYSE:DIS) are among the top names in the fund.
Since inception, JRNY is about flat, but returned around 6% since late December. Interested readers should research the fund further with a view to buy the dips.