3 ETFs bucking the debt deadlock

Consumer spending has been noticeably strong despite the impasse on Capitol Hill.

By TheStreet Staff Jul 27, 2011 10:45AM

By Don Dion, TheStreet

 

The gloomy debt situations facing the United States and the EU have led many people to question the strength, stability and longevity of the global economic recovery. While the current economic climate is certainly challenging, there are still a number of places investors can turn to in order to find stability and strength.

 

Earlier this week, I highlighted gold miners as a pocket of strength, given the market's uncertainty and the continued appeal of gold. Funds like the Market Vectors Gold Miners ETF (GDX) have managed to power higher, outpacing not only the broader markets but also physically backed gold offerings like iShares Gold Trust (IAU).

 

While gold and gold miners have surged and will continue to stay in favor as investors second-guess the strength of the market's recovery, other corners have become attractive because of their surprising resilience in the face of market turmoil.

 

Consumers, for instance, have held strong throughout this bout of market rockiness. As Washington, D.C., lawmakers have continued to butt heads over a debt ceiling agreement and EU leaders struggle to sort out their own debt crisis, domestic consumers have remained willing to open their wallets and spend.

 

On Tuesday, the markets received further evidence of consumer hardiness when July's consumer confidence number ticked higher, outpacing analyst expectations and June's reading.

The discretionary side of the consumer sector has been notably strong as individuals increasingly treat themselves to luxuries. This eagerness to spend on wants as well as needs has helped power a number of consumer-discretionary-focused ETFs to top spots within our momentum rankings. Looking to the near term, some of these funds may prove to be attractive bets for risk tolerant investors.

 

As I noted in this video Wednesday morning, it seems only fitting that the PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ) has ascended toward the top of our momentum rankings. Summer vacation season has gotten into full swing. Expect companies in the media, dining and travel industries to benefit.

 

The gaming industry has been a major beneficiary as consumers become more comfortable with their spending. The Market Vectors Gaming ETF (BJK) is the strongest option for those looking to specifically target this component of the consumer sector. BJK has enjoyed some solid strength over the past week following an impressive earnings showing from the fund's second largest holding, Wynn Resorts (WYNN).

According to the company's report, Wynn witnessed double-digit revenue growth at both its Las Vegas- and Macau-based establishments over the most recent three-month period. The bar has been set high and it will be interesting to see how BJK performs in the days following the earnings reports from fellow top components, Las Vegas Sands (LVS) and International Gaming Technology (IGT).

 

BJK has managed to outpace other consumer-focused products over the past 30 days. However, it is important to note that, due to the pinhole focus of this fund, it is inherently volatile. Therefore, any exposure must be kept small, and closely monitored.

 

The SPDR S&P Retail ETF (XRT) has long been my go-to product when it comes to finding ways to benefit as the consumer strengthens. Designed to track the industry as a whole, this fund boasts exposure to retailers in industries as wide ranging as apparel, the Internet, automotive and food.

 

Of the three funds highlighted above, XRT is likely the most appealing for long-term, buy-and-hold investors.

 

The resilience and strength of consumers in the face of adversity bode well for a recovery. It may be tempting to steer clear of the markets at this time, but I encourage investors to keep funds like PEJ, BJK and XRT on their watch lists.

 

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