Don’t Overlook Consumer ETF Returns

November 05, 2019

Much like the S&P 500’s own track record in this latest (ongoing) earnings cycle, roughly 82% of the consumer discretionary sector has thus far beaten earnings estimates in a pretty solid showing. That doesn’t mean investors are flocking to the sector.

The S&P 500 may be in record territory, but investor appetite for cyclical sectors such as consumer discretionary remains muted at best.

So far this year, U.S. consumer discretionary ETFs—as a segment—have attracted under $200 million in net creations.

The biggest fund, the $14 billion Consumer Discretionary Select Sector SPDR (XLY), is actually a net asset loser year to date despite strong performance relative to the SPDR S&P 500 ETF Trust (SPY):



The relative aversion to consumer discretionary stocks isn’t all that surprising in a year when playing defense has been an overarching theme. Unlike staples, discretionary names are seen as riskier bets in a global economic slowdown.

That said, there are three interesting pockets within discretionary names that are standing out lately.

Homebuilder Stocks

A look at the top asset-gathering ETFs year to date shows that second only to the broader Vanguard Consumer Discretionary ETF (VCR)—a fund that competes with XLY, but offers a much deeper portfolio, with some 300 holdings, and cheaper, at 0.10% in expense ratio—homebuilder ETFs are right there at the top.


2019's Top Gainers ($, Millions)

Ticker Fund YTD 2019 Net Flows ($M) 2019 AUM ($M) % of AUM
VCR Vanguard Consumer Discretionary ETF 167.07 3,014.58 5.54%
XHB SPDR S&P Homebuilders ETF 80.38 826.51 9.73%
ITB iShares U.S. Home Construction ETF 75.33 1,296.77 5.81%
FDIS Fidelity MSCI Consumer Discretionary Index ETF 43.83 728.15 6.02%
IYC iShares U.S. Consumer Services ETF 40.18 984.46 4.08%
ESPO VanEck Vectors Video Gaming & eSports ETF 31.98 41.01 77.99%
RCD Invesco S&P 500 Equal Weight Consumer Discretionary ETF 15.13 91.02 16.62%
NERD Roundhill BITKRAFT Esports & Digital Entertainment ETF 9.83 9.75 100.78%
CHIQ Global X MSCI China Consumer Discretionary ETF 4.53 156.48 2.89%
IEDI iShares Evolved U.S. Discretionary Spending ETF 2.98 9.11 32.76%


The housing market may not be going gangbusters this year, but homebuilders are one of the best-performing segments within consumer discretionary names due to expectations that low—and lowering—interest rates will foster an uptick in demand for housing.

Low unemployment rates and strong consumer confidence also feed into this outlook for a strong housing market going forward.

The SPDR S&P Homebuilders ETF (XHB) and the iShares U.S. Home Construction ETF (ITB) are the biggest ETFs in this segment. Check out these funds’ impressive performance this year:



XHB has rallied some 20 percentage points more than SPY, while ITB is shelling out 2x the gains of the S&P 500. The disparity in performance between the two homebuilder ETFs ties to their focus and portfolio construction.

ITB—the performance leader this year—is a more pure-play take on homebuilders, which represent about 63% of the portfolio, and where names like D.R. Horton and Lennar Corp lead portfolio allocation.

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

By contrast, XHB is a more broadly diversified take on the space, blending builders with furnishings, appliances and home improvement names. Homebuilders represent less than 30% of XHB’s portfolio, where top holdings include, instead, names like Mohawk Ind. and Home Depot.

Another key different between these two ETFs is that ITB is a market-cap-weighted portfolio, whereas XHB equal weights holdings. XHB is also cheaper than ITB, with a price tag of 0.35% compared with ITB's 0.42%.

Either way—be it purely a play on homebuilders or more broadly a play on the housing industry—this is a segment of the consumer discretionary sector that’s delivering strong gains and picking up assets.

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