Broadly speaking, U.S. economic data released this year has been solid. Of course there have been hiccups along the way, a slightly higher unemployment rate seen in last Friday's May jobs report is one example, but overall the data have been decent.
Improving data points have included some good news regarding U.S. consumers, or those folks that drive 70 percent of this country's GDP. Chipper consumers have meant good things for discretionary and retail ETFs, a conversation that often revolves around a small number of ETFs such as the Consumer Discretionary Select Sector SPDR (NYSE:XLY) and the SPDR S&P Retail ETF (NYSE:XRT).
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Good choices to be sure as XLY, the largest discretionary ETF, is up 17.4 percent year-to-date. XRT, which takes an equal-weight approach to the retail sub-sector, has surged nearly 25 percent. Not every discretionary ETF gets the attention it deserves and with that in mind, here are few such funds to consider should consumer data keep improving.
PowerShares S&P SmallCap Consumer Discretionary Portfolio (NASDAQ:PSCD) In the essence of brevity, the PowerShares S&P SmallCap Consumer Discretionary Portfolio is the small-cap equivalent of XLY, obviously courtesy of a different issuer. The PowerShares offering gives investors exposure to retail, automotive, leisure and recreation, media and real estate. PSCD's 106-stock lineup has rewarded investors this year with a gain of 21 percent.
This is another one of those ETFs that know-it-alls that are in love with superficial evaluation tools such as assets under management would tell investors to stay away from. Indeed, PSCD has just $77.4 million in AUM, but its year-to-date returns indicate staying away from this ETF on that basis was a dumb move.
PSCD's largest holdings are heavily traded and the ETF rarely trades at noticeable premiums or discounts to its net asset value, according to PowerShares data, indicating the fund is sufficiently liquid.
First Trust Consumer Discretionary AlphaDEX Fund (NYSE:FXD) The First Trust Consumer Discretionary AlphaDEX Fund follows the same path as as the other AlphaDEX ETFs and that can work in favor of investors in the right market environment. For example, FXD is up 35 percent in the past year compared to 33 percent for XLY.
Like the other AlphaDEX funds, FXD eschews weighting by market cap in favor of a focus on a value and growth factors. The result is a lineup of 125 stocks with none receiving a weight north of 1.62 percent. Top-10 holdings include Guess (NYSE:GES), General Motors (NYSE:GM) and Pandora (NYSE:P).
FXD, which has almost $625 million in assets under management, allocates more than 38 percent of its combined weight to media and specialty retail names. The one drawback here is that the ETF's three-year standard deviation is about 300 basis points higher than the S&P 500 Consumer Discretionary Index's, according to First Trust data.
Guggenheim S&P 500 Equal-Weight Consumer Discretionary ETF (NYSE:RCD) As is the case with the AlphaDEX funds, there are times when equal-weight sector ETFs outpace their cap-weighted rivals. The $61.8 million RCD has been doing that (compared to XLY) over the past year. RCD is dominated by the specialty retail, media and hotel and restaurant sub-sectors with those groups combining for about 54 percent of the fund's weight.
Holdings include Best Buy (NYSE:BBY), Coach (NYSE:COH) and Wynn Resorts (NASDAQ:WYNN). RCD's expense ratio of 0.5 percent per year is nearly triple that of XLY's, and like FXD, RCD is also slightly more volatile than XLY.
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