A smart beta exchange-traded fund, the Invesco S&P 500 Equal Weight Consumer Discretionary ETF RCD debuted on 11/01/2006 and offers broad exposure to the Consumer Discretionary ETFs category of the market.
What Are Smart Beta ETFs?
Market cap-weighted indexes were created to reflect the market or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum-based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
Managed by Invesco, RCD has amassed assets of over $374.40 million, making it one of the larger ETFs in the Consumer Discretionary ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P 500 Equal Weight Consumer Discretionary Index.
The S&P 500 Equal Weight Consumer Discretionary Index equally weights stocks in the consumer discretionary sector of the S&P 500 Index.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Operating expenses on an annual basis are 0.40% for this ETF, which makes it one of the cheaper products in the space.
It has a 12-month trailing dividend yield of 0.93%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 100% of the portfolio, the fund has the heaviest allocation to the Consumer Discretionary sector.
Looking at individual holdings, Etsy Inc ETSY accounts for about 1.91% of total assets, followed by Amazon.com Inc AMZN and Dollar General Corp DG.
Its top 10 holdings account for approximately 18.29% of RCD's total assets under management.
Performance and Risk
So far this year, RCD has lost about -24.16%, and is down about -19.57% in the last one year (as of 09/08/2022). During this past 52-week period, the fund has traded between $104.87 and $160.55.
RCD has a beta of 1.33 and standard deviation of 31.87% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 60 holdings, it effectively diversifies company-specific risk.
Invesco S&P 500 Equal Weight Consumer Discretionary ETF is a reasonable option for investors seeking to outperform the Consumer Discretionary ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Consumer Discretionary ETF VCR tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF XLY tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $4.79 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $15.84 billion. VCR has an expense ratio of 0.10% and XLY charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Consumer Discretionary ETFs.
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