Consumer discretionary ETF options-where to begin?

Believe it or not there is a great difference between the consumer discretionary ETF offerings. Why? Because one man’s discretionary purchase is another man’s necessary purchase. I have spent years talking about money, budgets, spending and the like with clients. One thing I have learned is that different people consider different things a staple or a discretionary item. What do you consider cell phones, internet connectivity, cable/satellite television, or coffee at your favorite spot?

My Discovery

While conducting research recently I discovered some interesting findings when searching for a consumer discretionary fund.  The fund considered were:

• SPDR Select Consumer Discretionary – XLY
• PowerShares Dynamic Consumer Discretionary – PEZ
• Vanguard Consumer Discretionary – VCR
• iShares Global Consumer Discretionary – RXI
• Wisdom Tree International Consumer Discretionary – DPC

When considering an ETF for a portfolio many things should be looked at besides the bid/ask spread.  A few of those items were analyzed for this post.  They were: 3 month average volume, assets, expenses, # of holdings, yield, p/e, 36 month average monthly return, downside risk, correlation to ACWI (iShares All world Index), 36 month Sortino Ratio. The data is in the links below (click for larger images).

Straight away I removed the Wisdom Tree International fund and the PowerShares Dynamic fund for their low trading volume and assets under $50 million.

The iShares Global caught my eye for the “global” aspect but 50% of the portfolio is in US stocks and in the top 15 holdings alone approximately 14% were in auto makers.  As well, the fund has half the holdings of the Vanguard ETF and twice the expenses.

So, it really came down to the SPDR and theVanguard fund.  In the end the Vanguard fund won out as it has a larger number of holdings, larger yield, and lower p/e.  If we needed the fund for very high volume trading we would have selected the SPDR fund.  In addition, the Vanguard fund has slightly out performed the SPDR fund in the 1 month, 6 month and 12 month time frames.

The important item to note about both the SPDR and Vanguard ETF is that although they are not “global” ETFs the underlying companies have significant international exposure and revenue streams.  Another item to note is that many of the companies in the fund may not be staples but are consumer downgrade companies.  Meaning, when times get tough people eat at lower end restaurants like McDonalds, they fix up their homes with purchases from Lowes, and watch movies at home on Comcast.  As well, my inside sources tell me that there has been no drop off in the number of buses that service Disney World.  This tells me that the falling dollar has made Disney world cheaper for foreigners who have picked up the lower patronage from Americans.

Disclosure Statement: ETFGPS is a blog that Navigates The World of ETFs. Sustainable Investment Strategies LLC is a Registered Investment Adviser in the State of Maryland, and does hold positions in VCR at the time of writing. Investors who are interested in money management services may visit the Sustainable Investment Strategies LLC web site

Tagged as: Consumer Discretionary, RXI, VCR, XLY