Is the U.S. consumer running out of steam? Recent data suggests that might be the case. Research from American Century Investments points out three key issues sapping the spending power of the U.S. consumer. Those factors may add to the case for foreign diversification in an area like emerging markets, for example.
See more: Consider Active Inflation ETF AVIE as Inflation Persists
Firstly, it may be worth breaking down how the U.S. consumer is running out of steam. Wage growth has dropped since peaking in 2022, per American Century Investments’ research. At the same time, savings have dropped since pandemic-era peaks in savings. Finally, discretionary spending is slowing down too, in perhaps the most direct example of consumer troubles.
Of course, consumer issues alone aren’t the only problem for the U.S. economy. Interest rates look set for a higher for longer period, while inflation, itself an issue, remains a challenge for growth too.
That may inspire investors to consider diversifying away from the U.S. Emerging markets could present an appealing option in doing so. Emerging markets have largely seen their central banks already finish their rate cycle response to the pandemic. What’s more, diversifying supply chains look set to benefit some of those nations.
American Century Investments’ Avantis Investors brand offers two different ETFs that look at the space. The Avantis Emerging Markets Equity ETF (AVEM) presents one option. AVEM charges 33 basis points (bps) to actively invest. It looks to outperform the MSCI Emerging Markets IMI Index. AVEM has returned 14.4% over one year per Avantis Investors data.
Investors can also consider the recently launched Avantis Emerging Markets ex-China Equity ETF (AVXC). China is facing its own economic problems worse than those presented here in the U.S. AVXC looks into emerging markets but excludes China. It charges the same fee as AVEM.
Taken together, the two strategies offer one option to deal with a lagging U.S. consumer. Should that portend more issues for the overall U.S. stock market, diversifying with either AVEM or AVXC or both could appeal.
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