VettaFi’s associate director of research, Roxanna Islam, appeared on TD Ameritrade’s The Watch List program Wednesday to discuss consumer spending data and consumer discretionary ETFs. Despite inflation dominating the news, U.S. consumers still have a strong desire to spend, she explained, a durable trend thanks to consumers’ willingness to find different ways to spend in different economic cycles.
Even amid higher costs for food prices and housing, areas like cosmetics, personal care, and luxury goods have maintained higher spending. Responding to a question from host Nicole Petallides, Islam underscored the difference between how lower-income consumers have used the internet to continue spending compared to continued higher-income consumer spending on luxury brands.
“Even if they don’t buy those products, that is a benefit for a lot of these internet, e-commerce companies that generate ad revenue and revenue through web traffic,” Islam said. “And they’re also looking for more creative ways to spend besides cash, using things like credit card points, or buy now pay later, which has increased significantly over the past couple of years.”
“If you look at the S&P 500 global index for luxury goods, that’s up 17% year to date. So that’s outperformed a lot of the other consumer discretionary sectors. And we just saw LVMH, for instance, report earnings a couple of hours ago, and, fashions and leather goods segment was up 18% versus I think about 10% expectations, so that was a significant beat,” Islam added, underlining a healthy M&A environment in luxury goods with the Tom Ford/Estee Lauder deal in the Fall.
Looking at consumer discretionary ETFs, ETFs that could be set to benefit from spending trends, Islam pointed to strong brand names in the Global X Millennial Consumer ETF (MILN) which holds names like Starbucks (SBUX) and Uber (UBER), while consumers are still engaging in the kind of “revenge travel” that could boost a strategy like the ALPS Global Travel Beneficiaries ETF (JRNY).
See more: “Travel ETFs Hold On To Strong YTD Returns”
JRNY, which charges a 65 basis point (bps) fee and is nearing its three-year mark milestone this September, also holds luxury names that have proved durable despite a topsy-turvy economy, like LVHM Moet Hennessy Louis Vuitton (MC) and Estee Lauder (EL).
“Revenge travel is also very much still a thing, and that not only benefits those travel stocks, that also benefits tourism in areas like Asia and Europe that have been slower to reopen than parts of the U.S.,” Islam said.
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