For all the chatter regarding a slowing U.S. economy, the
consumer, two-thirds of this country's GDP, has been strong in
2012. Consumer strength is all the more impressive when factoring
in a tight presidential election and the possibility of a fiscal
cliff.
Even with those issues in mind, the consumer has chugged
along, helping boost the fortunes of consumer discretionary ETFs
in the process. Although some of these funds have run far enough
fast enough that calling them overbought is not entirely
inaccurate, the holiday shopping season will be here before
investors know it and that could provide another lift to
discretionary ETFs.
"In this country, most consumers prefer to spend rather than
save, and this tends to ring even more true over the holiday
season," S&P Capital IQ said in a research note. "The
International Council of Shopping Centers (ICSC) expects holiday
chain store sales to increase 3.0%. The National Retail
Federation (
NRF
), which includes online sales in its estimate, is projecting a
4.1% increase for the traditional November-December time period.
This is higher than the 10-year average holiday sales increase of
3.5%, and is the most optimistic forecast that the NRF has
released since the recession."
As S&P Capital IQ notes, retail stocks follow the broader
market higher in the October through March time frame with March
and February ranking as two of the best three months in which to
own retail names.
"Given the historical data, it appears that now is a
relatively good time to shop for some retail stocks. Of course,
past performance is no guarantee of future results, and if the
holiday shopping season falls short of expectations, Q4 results
may disappoint (and the stocks could suffer)," the firm said in
the note.
In the note, S&P rated three discretionary ETFs, applying
an Overweight rating to the Consumer Discretionary Select Sector
SPDR (NYSE:
XLY
) and Market-weight ratings to the iShares Dow Jones US Consumer
Services Index Fund (NYSE:
IYC
) and the Vanguard Consumer Discretionary ETF (NYSE:
VCR
).
With $3.94 billion in assets under management and an expense
ratio of 0.18 percent, XLY is the largest and least expensive
discretionary ETF on the market. XLY has outperformed both its
Lipper peers and the S&P 500 over the past 1-year, 3-year,
5-year and 10-year periods, with significant outperformance
versus its peers over the 3-year period (19.9% vs. 16.2%),
according to S&P.
XLY's top-10 holdings include Comcast (NASDAQ:
CMCSA
), McDonald's (NYSE:
MCD
), Home Depot (NYSE:
HD
) and Amazon (NASDAQ:
AMZN
).
The Marketweight-rated iShares Dow Jones U.S. Consumer
Services Sector Index Fund is home to $320.6 million in AUM and
charges 0.47 percent per year. Top-10 holdings in that ETF
include Wal-Mart (NYSE:
WMT
), McDonald's, Home Depot and Amazon. IYC is up 23.1 percent
year-to-date.
The Vanguard Consumer Discretionary is only slightly more
expensive than XLY with fees of 0.19 and its top-10 holdings are
similar. Those include Comcast, McDonald's, Home Depot, Amazon
and Walt Disney (NYSE:
DIS
). Over the past five years, XLY has outpaced VCR, but since
early 2004, the Vanguard fund has come out on top.
For more on discretionary and retail ETFs, click
here
.
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