It is getting to be that time of year. The time when retail
stocks come into the spotlight due to the holiday shopping season
and that means plenty of investors will be giving discretionary
careful consideration. That is not a bad idea, given that
the discretionary sector is usually a strong
The sector also has a tendency to deliver solid returns to
investors into the first quarter as well. Speaking of returns,
not all discretionary ETFs are created equal, something S&P
Capital IQ points out in a recent research note.
"Thus far in 2012, some of the best performing sub-industries
in the consumer discretionary sector are cable & satellite,
homebuilding, household appliances and Internet retail. All of
these are up more than 30% this year. In contrast, auto parts
& equipment, casino & gaming, footwear and restaurants
are all in the red," according to the note.
In other words, discretionary ETFs with large weights to
stocks such as Amazon (NASDAQ:
) and Comcast (NASDAQ:
) have performed well, but those performances have been hampered
by exposure to stock such as Las Vegas Sands (NYSE:
) and AutoZone (NYSE:
"For one of the best performing groups, homebuilding, there is
a negative fundamental outlook," S&P Capital IQ notes.
"Meanwhile, two of the largest sub-industries, movies &
entertainment and cable & satellite, have neutral
Home to 82 stocks, the Consumer Discretionary Select Sector
) is the largest discretionary ETF by assets with $3.35 billion.
Comcast, Amazon and Priceline (NASDAQ:
) combine for about 15 percent of that fund's weight. By
comparison, Nike and five auto-related retailers combine for less
of XLY's than Comcast alone. XLY garnered a Marketweight rating
The $311.1 million iShares Dow Jones U.S. Consumer Services
Sector Index Fund (NYSE:
) is a standout among discretionary ETFs, according to S&P.
The firm rated IYC Overweight. Comcast, Amazon and eBay (NASDAQ:
) combine for 12.3 percent of the ETF's weight. Although IYC is
home to almost 190 stocks, that broad lineup includes just six
auto-related names and only token exposure to casino names.
Combined, Las Vegas Sands, Wynn Resorts (NASDAQ:
) and MGM International (NYSE:
) represent less than three percent of IYC's weight.
The Market Weight-rated Vanguard Consumer Discretionary ETF
) devotes just 2.3 percent of its weight to auto retailers and
2.4 percent of its weight to casino names. Conversely, cable and
Internet retail stocks combine for 18 percent of the fund's
Among the trio of discretionary ETFs highlighted by S&P,
the leader in year-to-date returns is IYC. Up 18.6 percent this
year, the iShares fund nudges VCR and its 18.4 percent gain for
top honors among major discretionary ETFs. IYC has also been
significantly less volatile than XLY and VCR. IYC's year-to-date
volatility is 12.5 percent compared to 14 percent for XLY and
14.7 percent for VCR.
IYC is the most expensive of the trio in terms of fees at 0.47
percent per year. XLY is the cheapest with an annual expense
ratio of 0.18 percent. VCR charges 0.19 percent.
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