Market Overview

S&P Prefers Consumer Discretionary SPDR to Rivals


There's no shortage of exchange traded funds tracking consumer discretionary stocks on the market today, but no two funds are created exactly the same. In that vein, a recent research note from S&P Capital IQ emphasizes that cost should not be an investor's only consideration when parsing through ETFs that appear to have similar objectives.

In the note, S&P Capital IQ highlights the cost battle between State Street's (NYSE: STT) State Street Global Advisors unit and Vanguard, the second- and third-largest U.S. ETF sponsors, respectively. Late last year, Vanguard announced it was paring the expense ratios on many of its sector funds to 0.19% from 0.24%. SSgA answered that shot a few weeks ago by announcing it would it reduce the expense ratios on the nine select sector SPDR ETFs to 0.18% from 0.2%.

One of the SPDRs ETFs that's home to the new 0.18% expense ratio is the Consumer Discretionary Select Sector SPDR (NYSE: XLY). S&P Capital IQ rates that ETF Overweight and prefers the ETF to the rival Vanguard Consumer Discretionary ETF (NYSE: VCR).

XLY is currently pressing towards a new 52-week and features McDonald's (NYSE: MCD), Comcast (Nasdaq: CMCSA), Walt Disney (NYSE: DIS), Amazon (Nasdaq: AMZN) and Nike (NYSE: NKE) among its top-10 holdings.

The same goes for VCR, which holds 372 stocks overall, far more than the 80 held by XLY. More holdings don't mean a better ETF as S&P implies.

"Despite the nearly 300 additional holdings in VCR, which in theory should reduce risk through diversification, we find that the Vanguard ETF has been more volatile, as its three-year beta (1.14) and standard deviation (22.6) are higher than the SPDR ETF's (1.09 and 21.5, respectively)," according to the note.

For those looking for exposure to the likes of Ford (NYSE: F), McDonald's, Walt Disney and Nike, S&P sees XLY as the better bet.

"While VCR has outperformed over the three-year period, for investors looking for high exposure to the largest-cap Consumer Discretionary stocks favored by S&P Capital IQ equity analysts, S&P Capital IQ's holdings-based ETF analysis suggests that XLY is the better alternative," the research firm said in the note.

At the start of trading today, XLY was up almost 8% year-to-date while VCR was up almost 10%.

Posted-In: Analyst Color Long Ideas News Sector ETFs Short Ideas Intraday Update Markets Analyst Ratings


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