You can’t think consumer discretionary this time of year without thinking retail as we head into the holidays. Retailers, as a segment, represent about a third of broader XLY, VCR and the like.
This is a segment that continues to see a battle between brick-and-mortar and online retail trends. It’s also a segment where single stocks can make or break a portfolio performance.
While RTH has outperformed SPY year to date, XRT has significantly lagged, due to portfolio construction.
XRT is equal-weighted. In this portfolio, a company like Target, that’s up 65% year to date, and Walmart, which is up 30%, each snag roughly the same allocation as Macy’s, which is down 50% this year, and Kroger, down 8.5%.
In a retail segment that has been plagued with massive divergence in performance between retailers, equal weighting has not worked well this year.
By comparison, RTH is a market-cap-weighted ETF led by companies that have had a stellar year.
Big names like Walmart, Amazon (up 18% year to date) and Home Depot (up 40% this year) are much bigger players in this portfolio. In fact, 40% of RTH is in these three stocks, all of them winners this year.
In the retail segment, you can also ditch the brick-and-mortar space of big winners and big losers and focus instead on online retailers, but that too has been a segment delivering mixed gains.
The two biggest ETFs here, the Amplify Online Retail ETF (IBUY) and the ProShares Online Retail ETF (ONLN) are both global in scope, so you’d get companies like Alibaba and Ebay in both portfolios. But their returns have been very different this year. Both have underperformed SPY.
As with everything else, looking under the hood is crucial to picking the right ETF for your allocation. In this case, the big difference between IBUY and ONLN is that IBUY equal-weights holdings in two geographic buckets, while ONLN has a tiered market-cap-weighted portfolio.
In the online retail space, that means ONLN is led by companies like Amazon and Alibaba (up 29% year to date), which alone represent almost 40% of the portfolio. By design, ONLN is a more concentrated play, with only 25 holdings, 40% of the portfolio tied to two stocks.
IBUY tilts smaller with companies like Stamps.com, PetMeds and Expedia among top holdings. The weighted average market cap of IBUY’s portfolio is only $54 billion versus $264 billion for ONLN. IBUY also has more holdings, 41 in all.
(Use our stock finder tool to find an ETF’s allocation to a certain stock.)
In the global online retail space this year, the broader diversification offered by IBUY’s methodology has done better.
Gaming ETFs are few and small in assets. This is a segment of consumer discretionary stocks that’s often overlooked. But it’s a space that has some big names—companies like Nintendo and GameStop—and one that’s been quietly gathering some assets lately.
The one-year-old VanEck Vectors Video Gaming and eSports ETF (ESPO) has seen its total assets grow about 4% in the past week alone. The fund is still small, with only $41 million in AUM, but it’s already the second-largest gaming ETF and one of the most popular consumer discretionary ETFs in the past week, and year to date, has seen its asset base grow about 78%.
ESPO focuses on a specific trend within video games—namely eSports—looking for companies in which most of the revenue is tied to gaming and streaming. The ETF owns a mix of names, from Chinese conglomerate Tencent to chipmaker Nvidia to U.S. game developer Activision Blizzard.
While ESPO is one of the most in-demand consumer discretionary ETFs this year, it’s not the only gaming ETF. Its main competition comes from the ETFMG Video Game Tech ETF (GAMR), the biggest gaming ETF, with $81 million in AUM, and the veteran in the space.
GAMR is a very different fund. It holds three times as many companies as ESPO—its portfolio contains 86 stocks, compared with ESPO's 26—and looks at the space differently.
GAMR organizes its portfolio in buckets, separating them on the criteria of just how “pure play” a company is in the gaming industry, and equal-weights each bucket. In the end, GAMR offers broader access to global companies that create, support or use video games.
There’s no question that this year, it seems e-Sports—a still burgeoning industry—is where a lot of the action has been in terms of performance. ESPO has delivered almost 3x the returns of GAMR:
Charts courtesy of StockCharts.com
As the holiday shopping season kicks into gear, the consumer discretionary sector—and its many segments within—could come into the spotlight, attracting renewed investor attention to the 40 ETFs offering all sorts of access to these cyclical names.
Contact Cinthia Murphy at [email protected]