Consumer Discretionary Sector 2Q17: Best and Worst

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The Consumer Discretionary sector ranks fifth out of the ten sectors as detailed in our 2Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Consumer Discretionary sector ranked fifth as well. It gets our Neutral rating, which is based on an aggregation of ratings of 13 ETFs and 19 mutual funds in the Consumer Discretionary sector as of April 5, 2017. See a recap of our 1Q17 Sector Ratings here.

Figures 1 ranks all nine ETFs that meet our liquidity standards and Figure 2 shows the five best and worst rated Consumer Discretionary mutual funds. Not all Consumer Discretionary sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 383). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Consumer Discretionary sector should buy one of the Attractive-or-better rated ETFs from Figure 1.

Our robo-analyst technology empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings. We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.

Figure 1: ETFs with the Best & Worst Ratings

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD), PowerShares Dynamic Retail Portfolio (PMR), and PowerShares S&P SmallCap Consumer Discretionary Portfolio (PSCD) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Seven mutual funds are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums. See our mutual fund screener for more details.

PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ) is the top-rated Consumer Discretionary ETF and Fidelity Advisor Consumer Discretionary Fund (FCNIX) is the top-rated Consumer Discretionary mutual fund. PEJ earns an Attractive rating and FCNIX earns a Neutral rating.

PowerShares Dynamic Media Portfolio (PBS) is the worst rated Consumer Discretionary ETF and Fidelity Advisor Consumer Discretionary Fund (FCECX) is the worst rated Consumer Discretionary mutual fund. PBS earns a Neutral rating and FCECX earns a Dangerous rating.

433 stocks of the 3000+ we cover are classified as Consumer Discretionary stocks.

The Danger Within

Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Analyzing each holding within funds is no small task. Our robo-analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.

Figures 3 and 4 show the rating landscape of all Consumer Discretionary ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds

Sources: New Constructs, LLC and company filings

This article originally published on April 5, 2017.

Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.

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