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2 ETFs That Could Benefit From Independence Day Spending Spikes

Published 02/07/2021, 14:30
Updated 02/09/2020, 07:05

With increased optimism about returning to ‘normal’ life as restrictions from the coronavirus pandemic are lifted, as well as an improving economic outlook, the US will likely celebrate this July 4 with more joy.

Traditionally, Independence Day means a sharp spike in travel demand as Americans binge on going places and backyard barbecues and picnics with fireworks. Recent metrics suggest:

“In 2021, US consumers planned to spend an average of approximately $80 on food for the Fourth of July.”

The holiday also marks the beginning of the busiest half of the year for retailers that offer enticing deals as patriotism meets the demand for shopping and socializing. For instance, in 2019, 86% of the nation shopped around Independence Day and “Americans on average spent $73.33 on food.”

Although celebrations, travelling and shopping could possibly be more subdued than during a typical summer, many Americans are likely to keep the spirit and traditions alive this July as well. Therefore, today we discuss two exchange-traded funds (ETFs) that could benefit from July 4 consumer trends. They are both managed by Invesco (NYSE:IVZ).

1. Invesco Dynamic Leisure and Entertainment ETF

Current Price: $52.38
52-Week Range: $28.50 - $55.25
Dividend Yield: 0.60%
Expense Ratio: 0.64%

The Invesco Dynamic Leisure and Entertainment ETF (NYSE:PEJ) gives exposure to 30 leisure and entertainment stocks. Companies are chosen based on a set of criteria that include earnings, recent price momentum, value and management action.

PEJ Weekly

PEJ, which tracks the returns of the Leisure & Entertainment Intellidex index, began trading in June 2005.

More than 52% of the names are consumer discretionary names, followed by communication services (37.92%) and consumer staples (10.02%). The top 10 holdings comprise about 45% of net assets of $1.61 billion.

Among the leading names are the global media group ViacomCBS (NASDAQ:VIAC), restaurant holding group Yum China (NYSE:YUMC), entertainment giant Walt Disney (NYSE:DIS), fast food group McDonald's (NYSE:MCD) and online travel platform Expedia (NASDAQ:EXPE).

So far in the year, PEJ is up about 31% and saw a multi-year high in March. A potential decline toward the $50-level would improve the margin of safety for potential long-term investors.

2. Invesco S&P SmallCap Consumer Discretionary ETF

Current Price: $117.76
52-Week Range: $53.02 - $126.08
Dividend Yield: 0.28%
Expense Ratio: 0.29% per year

The Invesco S&P SmallCap Consumer Discretionary ETF (NASDAQ:PSCD) provides exposure primarily to small-capitalization consumer discretionary firms. Recent metrics from the US Bureau of Economic Analysis show that in May, “consumer spending increased $2.9 billion.”

PSCD Weekly

PSCD tracks the returns of S&P SmallCap 600® Capped Consumer Discretionary Index, which is rebalanced quarterly. The fund started trading in early April 2010, and currently has 88 holdings.

As far as sector allocations are concerned, specialty retail lead with 38.35%, followed by household durables (15.72%), hotels, restaurants and leisure (12.36%), textiles, apparel and luxury goods (8.79%) and auto components (8.39%). The top 10 holdings comprise nearly 30% of almost $135 million.

Among the leading names in the fund are the omni-channel video game retailer GameStop (NYSE:GME), which is widely followed as a meme stock; department store chain Macy’s (NYSE:M); the world's largest retailer of diamond jewelry Signet Jewelers (NYSE:SIG); operator of roadside burger stands Shake Shack (NYSE:SHAK); and (NASDAQ:STMP), which provides mailing and shipping solutions online.

PSCD returned about 112% in the past 12 months and 44% year-to-date. The ETF hit a record high in early June. Its trailing P/E and P/S ratios stand at 31.47 and 17.21, respectively.

The upcoming earnings season could mean profit-taking in a number of the names in the fund. In addition, if interest rates were to move higher, consumer wallets could feel the effect.

However, the current pent-up demand means consumer discretionary shares are likely to benefit further from the post-COVID economic recovery. Buy-and-hold investors could regard a decline toward the $110 level as an opportunity to buy the ETF.

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