ETF Talk: ‘Consuming’ a Consumer Discretionary ETF

Sometimes, consumption is good.

Indeed, with the rate of inflation finally falling and the holiday season — especially Black Friday — almost among us, it seems very likely that this time of year will see its usual boom in conspicuous consumption.

The data seem to bear out this trajectory. Walmart’s (NYSE: WMT) most recent earnings call revealed that the company beat on both the earnings-per-share (EPS) and revenue front, with analysts pointing to a mix of strong consumer confidence, reduced inflation pressures, holiday promotions and lingering demand as the causes of WMT’s strong sales figures.

On the other side of this proverbial Janus-faced scenario are analysts who point out the presence of economic uncertainties such as the continued presence of inflation and record levels of consumer debt — two things that will undoubtedly have a real, but still-yet-to-be-determined effect on retail spending. Janus was the Roman god of doorways and has two faces, one looking at the past and one eyeing the future.

Indeed, while Walmart’s earning calls was a triumph, Target’s (NYSE: TGT) figures were, in the words of CNBC’s Melissa Repko, “its biggest earnings miss in two years.”

The iShares U.S. Consumer Discretionary ETF (NYSEARCA: IYC) is an exchange-traded fund (ETF) which tracks a market-cap-weighted index of American companies that provide consumer services.

IYC tracks an index of U.S. companies in the consumer discretionary industry, focusing on companies that are the most affected by the business cycle and seasonal consumer spending. This includes those that manufacture household durable goods, apparel and electronics, as well as those that offer services. IYC’s managers use market capitalization to select and weight the stocks in the portfolio, and each stock is capped at 15%.

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Top holdings in this fund include Amazon.com, Inc. (NASDAQ: AMZN), Tesla, Inc. (NASDAQ: TSLA), Netflix, Inc. (NASDAQ: NFLX), Costco Wholesale Corp. (NASDAQ: COST), Home Depot, Inc. (NYSE: HD), Walmart’s (NYSE: WMT), McDonald’s Corporation (NASDAQ: MCD) and Walt Disney Company (NYSE: DIS).

As of Nov. 19, IYC has been up 6.44% over the past month and up 14.11% for the past three months. It is currently up 24.93% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $1.02 billion in assets under management and has an expense ratio of 0.39%.

While IYC allows a prospective investor entry into the world of consumer discretionary stocks, such a fund may not be suitable for all portfolios. So, it’s important to carefully consider the risks and potential returns before making any investment decisions.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.