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Head To The Polls With This ETF In 2016

by
January 4, 2016 8:38 am
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Broadly speaking, consumer discretionary stocks and the related exchange traded funds were impressive performers in 2015. Last year, the Consumer Discretionary Select Sector SPDR (NYSE: XLY), the bellwether consumer discretionary ETF, climbed nearly 10 percent, including dividends paid.

 

Overall, the consumer discretionary sector was the best-performing group in the S&P 500 last year. However, media stocks were laggards. That much is highlighted by the PowerShares Dynamic Media Portfolio (NYSE: PBS) and its 2015 loss of nearly one percent. Making the slide experienced by PBS last year all the more concerning is the fact that the media ETF allocates nearly five percent of its weight to Walt Disney Co. (NYSE: DIS), one of just nine members of the Dow Jones Industrial Average to post a double-digit gain last year.

 

The good news is, if previous even-numbered year trends hold true, 2016 could be a good year in which to own PBS. The reasoning is simple: Traditional media companies stand to benefit from increased advertising revenue in election years and those revenues climb in presidential election years, which 2016 is.

 

Of course, such trends do not come with guarantees. After all, 2014 was a mid-term election year, but PBS fell 3.5 percent while XLY gained 9.5 percent and the S&P 500 jumped 13.5 percent. In 2012, a presidential election year, PBS surged 27 percent, beating the S&P 500 and XLY by 1,100 and 340 basis points, respectively. In 2010, a mid-term election year, PBS lagged the S&P 500 but the media ETF topped XLY by more than 500 basis points. In 2008, a presidential election year and a bad year for stocks, PBS traded lower but was 400 basis points less bad than the S&P 500.

 

Still, PBS and media stocks face challenges, namely from the widely known phenomenon now known as cord-cutting.

 

As for the media industry, Nomura analyst Anthony DiClemente said he expects “modest””subscriber losses and a stabilization of the TV advertising market next year. Media companies will promote the availability of their shows via on-demand services from pay-TV companies, which could hurt sales to Netflix but entice more consumers to keep their cable subscriptions, he said,” according to Bloomberg

 

Though PBS features ample exposure to traditional media stocks such as Disney, CBS Corp. (NYSE: CBS) and Time Warner Inc. (NYSE: TWX), the ETF is able to somewhat offset that exposure with weights to new media darlings such as Google parent Alphabet Inc. (NASDAQ: GOOG) and Facebook Inc. (NASDAQ: FB). Those stocks combine for 10.5 percent of PBS's weight.

 


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