Meet This Year’s Top Discretionary ETF
The consumer discretionary sector has been a laggard for much of this year, but the Consumer Discretionary Select Sector SPDR (XLY) has recently firmed up with a 2.4% gain over the past month.
Struggles earlier in the year for XLY and rival consumer cyclical and retail exchange traded funds do not mean all ETFs of this ilk have been left behind. Just look at the Market Vectors Retail ETF (RTH) .
The $157.7 million RTH has returned 16.6% this year, a performance that tops the S&P 500 by 510 basis points. Making RTH’s status as this year’s top-performing consumer cyclical ETF are the following facts.
First, the ETF has achieved its class leading status even with a 7.5% weight to Amazon (AMZN). Shares of the e-commerce giant have plunged more than 25% this year, putting the stock well into a bear market. Second, RTH is a dedicated retail ETF, meaning it lacks the exposure to high-flying airline stocks that have boosted shares of other overachieving cyclical ETFs this year. [A Nifty Consumer Discretionary ETF]
Rather, it has been more traditional retailers that have boosted RTH’s fortunes this year. The allocates a combined 18.1% of its weight to Dow components Wal-Mart (WMT) and Home Depot (HD). Those stocks are up 12% and 24.9%, respectively, year-to-date and are two of the 15 Dow members that have returned at least 10% this year.
RTH has an advantage over traditional retail ETFs. While an ETF such as th e SPDR S&P Retail ETF (XRT) is usually heavily allocated to apparel, specialty and other highly cyclical retailers, RTH is able to mitigate the volatility associated with cyclical ETFs and the risks associated with fickle consumers via significant weights to stocks that pop in consumer staples ETFs.[Retail ETF Fights Off Amazon Weakness]
In addition to Wal-Mart, RTH features exposure to CVS Caremark (CVS), Walgreen (WAG), Costco (COST) and Sysco (SYY). Those five stocks combine for 31.7% of RTH’s weight, giving the ETF significant staples exposure under the umbrella of a cyclical ETF.
The rub with that staples exposure is that the sector is currently the most richly value in the S&P 500, which diminishes some of the value proposition offered by RTH’s discretionary exposure. However, this is the time of the year to consider an ETF like RTH in anticipation solid earnings reports to come in the months ahead.
Retail observers have been monitoring weather forecasts for the final weekend before Christmas as it is expected to be one of the busiest periods of the holiday shopping season. For instance, ShopperTrak analytics calculates that this Super Saturday will be the biggest sales day of the year for the first time in a decade.
The weekend before Christmas has historically been one of the busiest periods of the year for brick-and-mortar stores since it is typically too late for online shipping orders to meet the Christmas deadline by then. [Time is Right for Retail ETFs]
Market Vectors Retail ETF
