The consumer sector has held up pretty well this year buoyed
by growing consumer confidence and increased spending. A number
of encouraging data in some key areas continue to fuel optimism
in the space.
GUGG-SP5 EW C D (RCD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
SPDR-CONS DISCR (XLY): ETF Research Reports
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The labor market is showing clear signs of healing, housing
markets are on the recovery path, and oil prices are at moderate
levels. This suggests a continuation of the bull run in this
important market segment as consumers have enough cash to spend
on discretionary products and services.
Given this, the equity markets are holding up quite well, though
the uncertainty over the Fed's policy and the rising tensions
over the budget and debt ceiling negotiations have kept the
market in check lately (read:
3 Sector ETFs to Watch for the Budget Battle
Due to this uncertainty, investors are definitely looking for a
safe and quality choice in this surging sector. For those
Guggenheim S&P Equal Weight Consumer Discretionary
could be an excellent play.
RCD in Focus
The fund offers exposure across the consumer discretionary market
with an equal weight methodology. It tracks the S&P 500 Equal
Weight Index Consumer Discretionary index and holds 83 securities
in its basket.
In terms of industries, specialty retail takes the top spot at
roughly one-fifth of the total, followed by modest allocations to
media and hotel restaurants.
The product gained over 29.6%% in the year-to-date time frame and
32.7% in the trailing one-year period beating the broad sector
fund - Consumer Discretionary Select Sector SPDR Fund (
) - by roughly 100 bps. This implies that RCD could lead the way
higher as well.
This is especially true given that RCD currently has a Zacks Rank
of 2 or 'Buy' with 'High' risk outlook (read:
3 Top Ranked Consumer ETFs to Buy Now
Why RCD is Beating XLY
The outperformance was mainly driven by the equal allocation
across various securities, as single firm holds less than 1.3% of
the total assets. This prevents heavy concentration and provides
a nice balance in a particular stock or group of securities.
With quarterly rebalancing, the product tends to cash in on the
overvalued segments and reinvest in the underperforming ones,
potentially allowing outperformance if the trends reverse (read:
Overweight These Equal Weight ETFs in Your
While the fund minimizes concentration risk, it charges a bit
higher fee of 50 bps compared to the expense ratio of 0.18% for
XLY. The fund has amassed $73.3 million in AUM while volume is a
little light. However, the liquid nature of the underlying
holdings should keep bid/ask spreads tight.
Further, the fund has a slight tilt toward large caps, as these
make up for 65% share in the fund's portfolio. Mid cap takes the
remaining portion with only 2% going toward small caps. It
appears that the large caps are poised to become strong
performers in the remainder of the year given the strong economic
This has started to materialize from the start of the third
quarter from a fund flows look. Notably, the most popular large
cap ETF (
) pulled in over $7.7 billion compared to $593 million for mid
) and under $4 billion for small cap (
) counterparts. This suggests that investors are cycling back to
large caps, which tend to be the most stable, for their exposure
in an uncertain environment.
Furthermore, RCD puts more focus on growth stocks with
three-fifths exposure. Growth investing is basically a momentum
play, which makes it a great strategy in a trending market (i.e.
a market characterized by a prolonged uptrend). This is because
growth stocks in the ETF portfolio harness their momentum in
earnings to create a positive bias in the market, resulting in
rocketing share prices.
As a result, the combination of large cap and growth stocks helps
to earn more returns even in an uncertain environment (read:
Bet on This Top Ranked Large Cap Growth ETF
This consumer ETF proved more beneficial to investors compared to
the other products in the space (see:
all the Consumer Discretionary ETFs here
). The solid run in the product is expected to continue in the
final quarter as the sentiments in the broad economy are on the
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