Consumer Discretionary Sector 1Q17: Best and Worst

The Consumer Discretionary sector ranks fifth out of the ten sectors as detailed in our 1Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Consumer Discretionary sector ranked second. 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 January 11, 2017. See a recap of our 4Q16 Sector Ratings here.

Figure 1 ranks from best to worst the eight Consumer Discretionary 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 25 to 386). 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 or mutual funds from Figures 1 and 2.

Here is our 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 – Top 5consumerdiscretionary1q17_figure1* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Five ETFs are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums. See our ETF screener for more details.

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

consumerdiscretionary1q17_figure2* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Six 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.

iShares U.S. Consumer Services ETF (IYC) is the top-rated Consumer Discretionary ETF and Fidelity Leisure Portfolio (FDLSX) is the top-rated Consumer Discretionary mutual fund. Both earn an Attractive 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. Both earn a Dangerous rating.

435 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 FUND’s HOLDINGs = PERFORMANCE OF FUND

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

consumerdiscretionary1q17_figure3

Sources: New Constructs, LLC and company filings

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

consumerdiscretionary1q17_figure4

Sources: New Constructs, LLC and company filings

This article originally published here on January 18, 2017.

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

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