ETF XRAY

Consumer Spending and ETFs in Retreat

By Carl Delfeld of the Chartwell ETF Advisor and Chartwell Partners Asset Management

U.S. consumers seem to be reluctant to open their pocketbooks and the impact is showing in the numbers and in the weak performance of exchange-traded funds that track consumer spending such as the iShares S&P Global Consumer Discretionary Sector ETF (RXI).

“The consumer is retreating,” said Richard Berner, chief US economist at Morgan Stanley stated in a Financial Times article. “It is too soon to say cracking, but the consumer is clearly turning cautious at the very least.”

Seasonally adjusted retail sales fell by 0.4 per cent in December, according to the commerce department. Excluding volatile purchases of automobiles and parts, sales were also down by 0.4 per cent, more than the market had expected.

October and November sales were also both revised down, though the November figure remained very strong. Retail sales for all of 2007 grew at the slowest pace for five years. The sales data come hard on the heels of the December jobs market report, which showed that unemployment jumped to 5 per cent.

Chartwell Partners' Global Sector ETF Rotation portfolio has been underweight consumer sensitve sectors and overweight defensive sectors.

Homebuilder ETFs May Be Close to Bottom

By Carl Delfeld of the Chartwell ETF Advisor

Could it be the right time to build a position in an exchange-traded fund that tracks homebuilder stocks like the SPDR S&P Homebuilders (XHB) which is down 43% year-to-date? Or is it still too soon?

Today’s November housing starts report is expected to fall -4.3% to 1.176 million units, reversing October’s small +3.0% upward rebound to 1.229 million acording to information from Barchart. The expected report would put the housing starts series below September’s level of 1.193 mln units to post a new 15-year low. The US housing starts series has now fallen by a total of -48% from the peak of 2.292 mln units seen in Jan 2006 to the 15-year low of 1.193 mln units seen in September 2007.

You might think that the current 48% plunge in housing starts may be unprecedented but it is not. In fact, US housing starts have seen even larger dives during the years of 1973-74, 1979-81, and 1987-89.

Nevertheless, the current housing market slump remains of historic proportions and there is no sign as yet of a bottom. Yesterday’s NAHB housing market index remained unchanged at a record low of 19 for the third straight month, which suggests that US homebuilder confidence is bumping along the bottom at present. US homebuilders remain in bad shape, with the supply of new homes still on the market at 8.5 months, which is just below the 16-year high of 9.3 posted in September. US homebuilders remain under pressure to slash expenses and inventories just to stay alive until the next cycle.

The S&P 500 US Homebuilders stock index is only slightly above the 6-year low of 283.87 posted several weeks ago. The index has plunged by 79% from its record high of 1333.82 posted in August 2005. The index has returned to the levels seen in 2002 during the early stages of the 2002-05 housing boom and is down 60% this year on a year-to-date basis.

There is no P/E on the homebuilder index at present because earnings for the sector are negative.

Find out when the time is right to take the plunge by joining the Chartwell ETF Advisor.
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