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Four ETFs Driven By Consumer Spending

NEW YORK (TheStreet) -- The U.S. economy may not be growing at a rate to generate new jobs, but it did grow at a faster-than-expected rate in the third quarter, buoyed much by an increase in consumer spending.

Possibly reaping the benefits of this increase in consumer spending could be the Consumer Discretionary Select Sector SPDR (XLY), the Vanguard Consumer Discretionary (VCR), the PowerShares Dynamic Consumer Discretionary (PEZ), and the Retail HOLDRs (RTH) funds.

  • Consumer Discretionary Select Sector SPDR holds 81 different stocks that are driven by consumer spending. Top holdings include fast food giant McDonald's Corp (MCD), Walt Disney (DIS) and Amazon (AMZN) .
  • Vanguard Consumer Discretionary is the most diverse ETF of its kind with 378 holdings. VCR includes Amazon and Target in its top holdings.
  • PowerShares Dynamic Consumer Discretionart is mid-cap blend of 60 holdings. The top holding is luxury retailer Coach (COH).
  • Retail HOLDRs is heavily concentrated on discount retailers. RTH allocates 19.48 % of its assets to Wal-Mart, 10.93% to Amazon and 8.68% to Target.

According to the Commerce Department, consumer spending, which accounts for nearly 70% of U.S. gross domestic product, increased by a 2.4% annual rate during the third quarter. Furthermore, retail sales rose in each of the three months in the third quarter with a further detail indicating that this rise is broad-based.

As for the next few months, the National Retail Federation expects the upcoming holiday season to be the best one in the past four years with sales increasing by 2.3% from a year ago. With this in mind, retailers like Wal-Mart (WMT), Target (TGT) and Amazon.

The recent increases in consumer spending and the expected holiday season increases are likely being driven by the fact that some consumers believe that the economic recovery in the U.S. is intact and the labor markets can't get much weaker than they are currently. Additionally, it appears that some consumers who pushed essential purchases back during the height of the Great Recession are finally starting to loosen their grip on their wallets.

Although it appears the aforementioned ETFs have already absorbed the blows dealt with consumers reluctant to spend, a weak labor force and weak consumer sentiment, it is equally important to consider the forces that could hinder them. Some of these forces include deflation, inflation, and a stubbornly weak real estate sector which could take a further blow due to enhanced foreclosures hitting the market.

Written by Kevin Grewal of SmartStops.net in Houston.

Grewal has no positions in the securities mentioned.

Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net , where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.

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