The consumer sector overall is said to comprise nearly two thirds of U.S. GDP growth. For that reason alone focusing on conditions of this sector is important for all investors. The list of ETFs available is growing and indexes they’re related to can be quite different one to the next. Some issues are new and have yet to gain wide support despite being well structured with a linked index and low fees.
One strange thing you might discover is some popular ETFs have holdings and weightings which are surprising and not intuitive despite a good looking chart. For many investors, knowing what you own or wish to own is important. Retail and related consumer issues (excluding Consumer Staples) can offer dramatic examples of what’s under the hood and perhaps offer some surprises.
Consumer Discretionary and Retail sectors have been excellent performers in early 2012. Despite a poor housing market and high unemployment this good performance has surprised and not been intuitive. Some reasons for the success can be attributed to pent-up demand, new “I got to have it” technological gadgets, auto sales (auto companies are self-financing), the grim news that roughly 3 million American homeowners are living rent-free by not paying their mortgages freeing up discretionary spending and the record number of Americans on food stamps which is another source of spending. Perhaps not in the retail sales data is the high number of Student Loans which many say are now in a bubble and which some have used for personal spending as opposed to tuition payments. And, as a last note of cynicism is the record number of people receiving unemployment benefits which also contribute to spending.
Let’s look at a variety of these ETFs with their top holdings and see if from a fundamental view they meet the test of what you think you’d find under the hood. Then we’ll view current technical market conditions and trends as they apply to each.
ProShares and DirexionShares have leveraged long and inverse issues for those investors wishing to hedge or speculate.
We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average where and if enough data is available. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high. Premium members to the ETF Digestreceive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.
For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.
PSCD follows the S&P Small-Cap 600 Consumer Discretionary Index which is comprised of common stocks of U.S. consumer discretionary companies that are principally engaged in the businesses of providing consumer goods and services that are cyclical in nature, including retail, automotive, leisure and recreation, media and real estate.
The fund was launched April 2010. The expense ratio is .29%. AUM equal $62M and average daily trading volume is less than 15.5K shares. As of April 2012 the annual dividend yield was .49% and YTD return 16.99%. The one year return was 9.93%.
RCD follows the same index as XLY but breaks the index into equal weightings. The fund was launched in November 2006. The expense ratio is .50%. AUM equal $62.5M and average daily trading volume is 18K shares. As of April 2012 the annual dividend yield was 1.03% and YTD return 15.30%. The one year return was 12.83%.
As a side note we really like RCD but the sponsor has gone through successive ownership changes over the past few years and the marketing effort has been lacking. Equal weight ETFs offer investors a good alternative choice from the more conventionally weighted issues.
Data as of April 2012
RCD Top Ten Holdings & Weightings
1.TripAdvisor Inc (TRIP): 1.43%
2.Priceline.com, Inc. (PCLN): 1.36%
3.Family Dollar Stores, Inc. (FDO): 1.35%
4.CBS Corporation Class B (CBS): 1.35%
5.Amazon.com Inc (AMZN): 1.35%
6.Starbucks Corporation (SBUX): 1.32%
7.Scripps Networks Interactive Inc (SNI): 1.32%
8.International Game Technology (IGT): 1.32%
9.Discovery Communications Inc Class A (DISCA): 1.32%
PMR follows the Dynamic Retail Intellidex Index which is an “enhanced” index applying quantitative strategies to achieve outperformance compared to a more static index. The index evaluates companies based on fundamental growth, stock valuation, investment timeliness and risk factors. The fund was launched in October 2010. The expense ratio is .60%. AUM equal $79M and average daily trading volume is 67K shares. As of April 2012 the annual dividend yield was .90% and YTD return 17.09%. The one year return was 23.38%.
Remember an ETF based on an enhanced index may outperform on the upside when markets are rising and underperform when markets and/or the category are under stress.
RTH is the newly converted ETF which was once Merrill Lynch HOLDRs and assumed by Van Eck. The weightings for HOLDRs given the structure as a trust and could not be changed. Van Eck has chosen to create a new index, Market Vectors US Listed Retail 25 Index. Van Eck hasn’t changed the weightings that much as of the relaunch in December 2011. This decision was made so as not to disrupt current investors in the previous ETF at this time.
The original HOLDRs was launched in May 2001. The expense ratio is .35%. AUM equal $69.4M and average daily trading volume is 311K shares. As of April 2012 the annual dividend was 4.69% and YTD return was 11.88%. The one year return is 15.45%
Data as of April 2012
Top 10 Holdings & Weightings
1.Wal-Mart Stores Inc (WMT): 10.20%
2.Home Depot, Inc. (HD): 7.25%
3.Amazon.com Inc (AMZN): 6.45%
4.CVS Caremark Corp (CVS): 6.00%
5.Lowe's Companies Inc. (LOW): 5.34%
6.TJX Companies (TJX): 5.02%
7.Target Corp (TGT): 4.97%
8.Costco Wholesale Corporation (COST): 4.67%
9.Walgreen Company (WAG): 4.50%
10.McKesson, Inc. (MCK): 4.43%
#6: iShares S&P Global Consumer Discretionary ETF (RXI)
RXI follows the S&P Global Consumer Discretionary Index. The fund was launched in September 2006. The expense ratio is .48%. AUM equal $170.8M and average daily trading volume is 29K shares.
As of April 2012 the annual dividend yield was 1.52% and YTD return 16.58%. The one year return was 7.62%.
Data as of April 2012
RXI Top Ten Holdings & Weightings
1.Toyota Motor Corporation (7203): 4.58%
2.McDonald's Corporation (MCD): 3.87%
3.Comcast Corp Class A (CMCSA): 3.17%
4.Walt Disney Co (DIS): 3.01%
5.Home Depot, Inc. (HD): 3.00%
6.Amazon.com Inc (AMZN): 2.93%
7.Honda Motor Company (7267): 2.47%
8.Daimler AG (DDAIF): 2.24%
9.Ford Motor Co (F): 1.92%
10.LVMH Moet Hennessy Louis Vuitton SA (MC): 1.78%
IYC follows the Dow Jones U.S. Consumer Services Index. The fund was launched in June 2000. The expense ratio is .48%. AUM equal $305M and average daily trading volume is 29K shares.
As of April 2012 the annual dividend yield was .78% and YTD return 13.04%. The one year return was 13.89%.
Data as of April 2012
IYC Top Ten Holdings & Weightings
1.Wal-Mart Stores Inc (WMT): 5.80%
2.McDonald's Corporation (MCD): 5.49%
3.Home Depot, Inc. (HD): 4.21%
4.Walt Disney Co (DIS): 3.95%
5.Amazon.com Inc (AMZN): 3.87%
6.Comcast Corp Class A (CMCSA): 3.40%
7.CVS Caremark Corp (CVS): 3.17%
8.Starbucks Corporation (SBUX): 2.25%
9.eBay Inc (EBAY): 2.22%
10.Lowe's Companies Inc. (LOW): 2.15%
#4: First Trust Consumer Discretionary AlphaDex(FXD)
FXD follows the StrataQuant Consumer Discretionary Index which is considered an “enhanced” index. Various quantitative measures and inputs are analyzed and then constructed from the Russell 1000 Index to create the index constituents. The fund was launched in May 2007. The expense ratio is .70%. AUM of $576M and average daily trading volume is 239K shares.
As of April 2012 the annual dividend yield was .56% and YTD return 14.47%. The one year return was 6.64%. An enhanced index can outperform as markets rise but perhaps underperform when falling.
Note in the holdings the assets are fairly equally weighted.
VCR follows the MSCI US Investable Market Consumer Discretionary 24/50 Index which consists of small, medium and large companies in the consumer discretionary sector. The index also includes automotive, household durable goods, textiles and apparel, and leisure equipment. Hotels, restaurants and of the leisure facilities and services are also included. The fund was launched in January 2004.
The expense ratio is .19%. AUM equal $501.9M and average daily trading volume is 52K shares. As of April 2012 the annual dividend yield was 1.19% and YTD return 16.74%. The one year return was 14.34%.
XRT follows the S&P Retail Select Industry Index which is an equally weighted index. The fund was launched in June 2006. The expense ratio is .35%. AUM equal $839.4 M and average daily trading volume is 5.9M shares. As of April 2012 the annual dividend yield was .69% and YTD return 16%. The one year return was 17.96%.
In the holdings data below you’ll see more of what you’d expect from a consumer oriented ETF.
Direxion has leveraged long or short ETFs available for hedging or speculating.
XLY follows the Consumer Discretionary Select Sector Index from that portion of the S&P 500 Index. The fund was launched in December 1998. The expense ratio is .18%. AUM $3 billion and average daily trading volume is 5.7M shares. As of April 2012 the annual dividend current yield was 1.57% and YTD return was 10.80%. The one year return was 11.57%.
Of note is the index linked to XLY consists of large companies which have strong consumer characteristics but away from typical retail issues for example.
ProShares offers leveraged long and inverse issues for investors wishing to hedge or speculate.
Data as of April 2012
XLY Top Ten Holdings & Weightings
1.McDonalds Corp 7.15%
2.Comcast Corp New 5.70%
3.Disney Walt Co 5.54%
4.Home Depot Inc 5.54%
5.Amazon Com Inc 5.09%
6.Ford Mtr Co Del 3.42%
7.Starbucks Corp 3.09%
8.News Corp 3.01%
9.Nike Inc 2.90%
10.Target Corp 2.80%
We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we’re sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.
Strong established linked index Excellent consistent performance and index tracking Low fee structure Strong portfolio suitability Excellent liquidity
Established linked index even if “enhanced” Good performance or more volatile if “enhanced” index Average to higher fee structure Good portfolio suitability or more active management if “enhanced” index Decent liquidity
Enhanced or seasoned index Less consistent performance and more volatile Fees higher than average Portfolio suitability would need more active trading Average to below average liquidity
Index is new Issue is new and needs seasoning Fees are high Portfolio suitability also needs seasoning Liquidity below average
The choices for investors interested in consumer or retail issues are similar but certainly can vary especially given different trading characteristics. For example, traders may wish to utilize more liquid issues for better trading efficiency. If an ETF index structure pleases you but volume is light consider using limit orders for any trading.
Our bias generally is to the more liquid issues unless we utilize them in Lazy portfolio approaches. Just always remember issuers issue and many times their interests aren’t aligned with yours. They primarily have a business interest and wish to have a competitive presence in any sector.
Internationally there is existing consumer or retail related issues available from Brazil and India which should attract investor interest given positive demographics particularly in the emerging market sector.
For further information about portfolio structures and more detailed technical information, including DeMark Indicators, using these or other ETFs see www.etfdigest.com. If you wish to take advantage of gaining access to our technical indicators, portfolios and member commentary you may take advantage of a free 14-day trial here.
You may address any feedback to:
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
.
Join in the conversation by following us on Facebook.
The ETF Digest is long XLY and XRT as of the above date.
The consumer sector overall is said to comprise nearly two thirds of U.S. GDP growth. For that reason alone focusing on conditions of this sector is important for all investors. The list of ETFs available is growing and indexes they’re related to can be quite different one to the next. Some issues are new and have yet to gain wide support despite being well structured with a linked index and low fees.
One strange thing you might discover is some popular ETFs have holdings and weightings which are surprising and not intuitive despite a good looking chart. For many investors, knowing what you own or wish to own is important. Retail and related consumer issues (excluding Consumer Staples) can offer dramatic examples of what’s under the hood and perhaps offer some surprises.
Consumer Discretionary and Retail sectors have been excellent performers in early 2012. Despite a poor housing market and high unemployment this good performance has surprised and not been intuitive. Some reasons for the success can be attributed to pent-up demand, new “I got to have it” technological gadgets, auto sales (auto companies are self-financing), the grim news that roughly 3 million American homeowners are living rent-free by not paying their mortgages freeing up discretionary spending and the record number of Americans on food stamps which is another source of spending. Perhaps not in the retail sales data is the high number of Student Loans which many say are now in a bubble and which some have used for personal spending as opposed to tuition payments. And, as a last note of cynicism is the record number of people receiving unemployment benefits which also contribute to spending.
Let’s look at a variety of these ETFs with their top holdings and see if from a fundamental view they meet the test of what you think you’d find under the hood. Then we’ll view current technical market conditions and trends as they apply to each.
ProShares and DirexionShares have leveraged long and inverse issues for those investors wishing to hedge or speculate.
We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average where and if enough data is available. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.
For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.
#10: PowerShares Small-Cap Consumer Discretionary ETF (PSCD)
PSCD follows the S&P Small-Cap 600 Consumer Discretionary Index which is comprised of common stocks of U.S. consumer discretionary companies that are principally engaged in the businesses of providing consumer goods and services that are cyclical in nature, including retail, automotive, leisure and recreation, media and real estate.
The fund was launched April 2010. The expense ratio is .29%. AUM equal $62M and average daily trading volume is less than 15.5K shares. As of April 2012 the annual dividend yield was .49% and YTD return 16.99%. The one year return was 9.93%.
Data as of April 2012
PSCD Top Ten Holdings & Weightings
#9: Rydex S&P Equal-Weight Consumer Discretionary ETF (RCD)
RCD follows the same index as XLY but breaks the index into equal weightings. The fund was launched in November 2006. The expense ratio is .50%. AUM equal $62.5M and average daily trading volume is 18K shares. As of April 2012 the annual dividend yield was 1.03% and YTD return 15.30%. The one year return was 12.83%.
As a side note we really like RCD but the sponsor has gone through successive ownership changes over the past few years and the marketing effort has been lacking. Equal weight ETFs offer investors a good alternative choice from the more conventionally weighted issues.
Data as of April 2012
RCD Top Ten Holdings & Weightings
#8: PowerShares Dynamic Retail ETF (PMR)
PMR follows the Dynamic Retail Intellidex Index which is an “enhanced” index applying quantitative strategies to achieve outperformance compared to a more static index. The index evaluates companies based on fundamental growth, stock valuation, investment timeliness and risk factors. The fund was launched in October 2010. The expense ratio is .60%. AUM equal $79M and average daily trading volume is 67K shares. As of April 2012 the annual dividend yield was .90% and YTD return 17.09%. The one year return was 23.38%.
Remember an ETF based on an enhanced index may outperform on the upside when markets are rising and underperform when markets and/or the category are under stress.
Data as of April 2012
PMR Top Ten Holdings & Weightings
#7: Van Eck Retail ETF (RTH)
RTH is the newly converted ETF which was once Merrill Lynch HOLDRs and assumed by Van Eck. The weightings for HOLDRs given the structure as a trust and could not be changed. Van Eck has chosen to create a new index, Market Vectors US Listed Retail 25 Index. Van Eck hasn’t changed the weightings that much as of the relaunch in December 2011. This decision was made so as not to disrupt current investors in the previous ETF at this time.
The original HOLDRs was launched in May 2001. The expense ratio is .35%. AUM equal $69.4M and average daily trading volume is 311K shares. As of April 2012 the annual dividend was 4.69% and YTD return was 11.88%. The one year return is 15.45%
Data as of April 2012
Top 10 Holdings & Weightings
#6: iShares S&P Global Consumer Discretionary ETF (RXI)
RXI follows the S&P Global Consumer Discretionary Index. The fund was launched in September 2006. The expense ratio is .48%. AUM equal $170.8M and average daily trading volume is 29K shares.
As of April 2012 the annual dividend yield was 1.52% and YTD return 16.58%. The one year return was 7.62%.
Data as of April 2012
RXI Top Ten Holdings & Weightings
#5: iShares Dow Jones U.S. Consumer ETF (IYC)
IYC follows the Dow Jones U.S. Consumer Services Index. The fund was launched in June 2000. The expense ratio is .48%. AUM equal $305M and average daily trading volume is 29K shares.
As of April 2012 the annual dividend yield was .78% and YTD return 13.04%. The one year return was 13.89%.
Data as of April 2012
IYC Top Ten Holdings & Weightings
#4: First Trust Consumer Discretionary AlphaDex (FXD)
FXD follows the StrataQuant Consumer Discretionary Index which is considered an “enhanced” index. Various quantitative measures and inputs are analyzed and then constructed from the Russell 1000 Index to create the index constituents. The fund was launched in May 2007. The expense ratio is .70%. AUM of $576M and average daily trading volume is 239K shares.
As of April 2012 the annual dividend yield was .56% and YTD return 14.47%. The one year return was 6.64%. An enhanced index can outperform as markets rise but perhaps underperform when falling.
Note in the holdings the assets are fairly equally weighted.
Data as of April 2012
FXD Top Ten Holdings & Weightings
#3: Vanguard Consumer Discretionary ETF (VCR)
VCR follows the MSCI US Investable Market Consumer Discretionary 24/50 Index which consists of small, medium and large companies in the consumer discretionary sector. The index also includes automotive, household durable goods, textiles and apparel, and leisure equipment. Hotels, restaurants and of the leisure facilities and services are also included. The fund was launched in January 2004.
The expense ratio is .19%. AUM equal $501.9M and average daily trading volume is 52K shares. As of April 2012 the annual dividend yield was 1.19% and YTD return 16.74%. The one year return was 14.34%.
Data as of April 2012
VCR Top Ten Holdings & Weightings
#2: SPDR Retail ETF (XRT)
XRT follows the S&P Retail Select Industry Index which is an equally weighted index. The fund was launched in June 2006. The expense ratio is .35%. AUM equal $839.4 M and average daily trading volume is 5.9M shares. As of April 2012 the annual dividend yield was .69% and YTD return 16%. The one year return was 17.96%.
In the holdings data below you’ll see more of what you’d expect from a consumer oriented ETF.
Direxion has leveraged long or short ETFs available for hedging or speculating.
Data as of April 2012
XRT Top Ten Holdings & Weightings
1.TripAdvisor Inc (TRIP): 1.24%
2.OfficeMax Inc (OMX): 1.18%
3.Priceline.com, Inc. (PCLN): 1.18%
4.GNC Acquisition Holdings Inc (GNC): 1.18%
5.Aeropostale, Inc. (ARO): 1.18%
6.Cabela's, Inc. (CAB): 1.18%
7.Family Dollar Stores, Inc. (FDO): 1.17%
8.Amazon.com Inc (AMZN): 1.17%
9.Rent-A-Center, Inc. (RCII): 1.16%
10.Collective Brands, Inc. (PSS): 1.15%
#1: SPDR Consumer Discretionary Sector ETF (XLY)
XLY follows the Consumer Discretionary Select Sector Index from that portion of the S&P 500 Index. The fund was launched in December 1998. The expense ratio is .18%. AUM $3 billion and average daily trading volume is 5.7M shares. As of April 2012 the annual dividend current yield was 1.57% and YTD return was 10.80%. The one year return was 11.57%.
Of note is the index linked to XLY consists of large companies which have strong consumer characteristics but away from typical retail issues for example.
ProShares offers leveraged long and inverse issues for investors wishing to hedge or speculate.
Data as of April 2012
XLY Top Ten Holdings & Weightings
1. McDonalds Corp 7.15%
2. Comcast Corp New 5.70%
3. Disney Walt Co 5.54%
4. Home Depot Inc 5.54%
5. Amazon Com Inc 5.09%
6. Ford Mtr Co Del 3.42%
7. Starbucks Corp 3.09%
8. News Corp 3.01%
9. Nike Inc 2.90%
10. Target Corp 2.80%
We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we’re sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.
Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity
Established linked index even if “enhanced”
Good performance or more volatile if “enhanced” index
Average to higher fee structure
Good portfolio suitability or more active management if “enhanced” index
Decent liquidity
Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity
Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average
The choices for investors interested in consumer or retail issues are similar but certainly can vary especially given different trading characteristics. For example, traders may wish to utilize more liquid issues for better trading efficiency. If an ETF index structure pleases you but volume is light consider using limit orders for any trading.
Our bias generally is to the more liquid issues unless we utilize them in Lazy portfolio approaches. Just always remember issuers issue and many times their interests aren’t aligned with yours. They primarily have a business interest and wish to have a competitive presence in any sector.
Internationally there is existing consumer or retail related issues available from Brazil and India which should attract investor interest given positive demographics particularly in the emerging market sector.
For further information about portfolio structures and more detailed technical information, including DeMark Indicators, using these or other ETFs see www.etfdigest.com. If you wish to take advantage of gaining access to our technical indicators, portfolios and member commentary you may take advantage of a free 14-day trial here.
You may address any feedback to: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Join in the conversation by following us on Facebook.
The ETF Digest is long XLY and XRT as of the above date.