Three Consumer Discretionary ETFs Worth Embracing, S&P Says
In this environment of slack job growth and concerning economic data points on an almost daily basis, consumer discretionary ETFs may not seem like the first place investors should be rushing to, but a few may be worth a look, according to Standard & Poor's Equity Research.
The research firm notes that the universe of consumer discretionary ETFs includes 19 funds, but just three earn the firm's highest ranking of “overweight” while seven earned “market weight” ratings and the remaining nine were tagged with the ominous “underweight” rating.
The three consumer discretionary ETFs that stand above the rest in the eyes of S&P are the Consumer Discretionary Select Sector SPDR (NYSE: XLY), the Vanguard Consumer Discretionary ETF (NYSE: VCR) and the Morningstar Consumer Cyclical ETF (NYSE: FCL).
All three feature low expense ratios of 0.2%, 0.24% and 0.19%, respectively, and all three funds offer significant exposure to Amazon.com (Nasdaq: AMZN), Ford (NYSE: F), Home Depot (NYSE: HD), McDonald's (NYSE: MCD), Time Warner (NYSE: TWX) and Walt Disney (NYSE: DIS), among a few other stocks.
Five of each fund's top-10 holdings receive above-average S&P Quality Rankings of A- or higher, reflecting consistent historical earnings and dividend growth, according to S&P.
Quite interestingly, these top-ranked ETFs also share striking similarities in their top two sub-industry equity holdings, namely Movies & Entertainment and Restaurants, which together recently accounted for about 26.6%, 21.9% and 25.0% of invested assets for XLY, VCR and FCL, respectively, while comparably representing 24.6% of the Consumer Discretionary sector's market value in the S&P 1500 Index, S&P noted. S&P said that it is currently neutral on those industry groups.
FCL is just three months old, but for investors looking to break the tie between XLY and VCR, the former has the superior dividend yield at about 1.4% while VCR has outperformed XLY by 1% over the past year.
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