Industry Updates

Investors turn to consumer sector ETFs amid optimistic US jobs data

One consumer discretionary ETF gathered $667m new assets within two weeks

Jamie Gordon

a group of people walking down a sidewalk

Two consumer discretionary and one consumer staples strategy were among Europe’s most popular ETFs last week following positive employment data for July.

Topping the list was the Xtrackers MSCI USA Consumer Discretionary UCITS ETF (XUCD), which gathered a considerable $417m new assets in the week ended 6 August, according to data from Ultumus, adding to the $250m inflows seen the week prior.

Furthermore, the Xtrackers MSCI World Consumer Discretionary UCITS ETF (XDWC) added $171m last week while BlackRock’s iShares MSCI Europe Consumer Staples Sector UCITS ETF (ESIS) pulled in $391m over the fortnight.

Todd Rosenbluth, head of ETF and mutual fund research at CFRA, explained employment growth last month was a likely cause of investors turning their attention to a sector which relies on salaried individuals with disposable income.

“Optimism heading into the US monthly jobs report which turned out stronger than expected likely played a role in the confidence in US and global consumer spending,” Rosenbluth said. 

Ahead of last Friday’s US payroll reading, new job forecasts for July ranged from 350,000 to 1.6 million, with a consensus of 870,000. 

Comfortably outstripping this estimate, US employment shot up by 943,000 last month, driven by strong gains in leisure and hospitality, education and professional services. 

Though there are still 8.7 million unemployed in the states, this number is down considerably since April 2020 and down 0.5% from the previous month – with the unemployment rate sitting at 5.4% as August began. 

On the other side of the pond a similar trend played out. Accountancy firm, BDO, noted its UK employment index rose by almost 1.6 points last month, up from 106.1 in June, showing the strongest pickup in hiring so far in 2021.

However, while these numbers appear positive, unemployment remains 3m above pre-pandemic levels in the US and last month’s data gathering does not factor in most of the growing concern about the spread of the coronavirus ‘delta’ variant.

The fear of new restrictions being introduced has already had an impact on other sector plays, including the Invesco Industrials S&P US Select Sector UCITS ETF (XLIS) and Xtrackers MSCI World Financials UCITS ETF (XDWF), which saw $477m and $264m outflows, respectively, last week.

On the one hand, some fear new restrictions will hamper recovery sentiment and add more stress to already stretched supply chains.

On the other hand, July’s positive jobs data brings the conversation of Federal Reserve interest rate policy back to the fore.

Robert Alster, CIO at Close Brothers Asset Management, argued the US monetary policymaker will wait to establish more confidence in the trajectory of employment figures before acting.   

“Payrolls continue to paint a positive picture of the US jobs market, but the Fed will be keeping a close eye on the detail before making any decisions,” Aslter said. “Companies are still struggling to hire, with job gains constrained by either not enough workers, the wrong workers in the wrong place, or the wrong jobs at the wrong salaries.  

“Teen workers currently make up a higher proportion of the labour market than usual, and Powell’s dashboard reveals an uneven recovery in terms of diversity and inclusion.” 

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