Consumer Discretionary ETFs Head to Head: XLY vs. VCR

The Consumer Discretionary sector has been attracting a lot of investor attention lately. Robust consumer demand and appealing trends in the U.S. economy seem to be driving the sector.

 

Cause for Appeal

 

Consumer spending accounts for more than 70% of U.S. economic output. Consumer spending increased 0.6% in November compared with 0.2% in the prior month, per data released by the Commerce Department. Spending topped forecasts of 0.5% in a Bloomberg survey. 

 

Coming to employment, Bureau of Labor Statistics reported that the U.S. economy added 148,000 jobs in December. Although this was below the 190,000 number expected by economists, unemployment rate stood at 4.1% in December, the lowest level since the year 2000.

 

GDP increased 3.2% year over year in the third quarter of 2017 compared with 3.1% in the second quarter. Moreover, President Donald Trump’s tax reform was recently signed into law. As a result, Fed members increased their expectations for 2018 GDP growth from 2.1% to 2.5%.

 

Let us now discuss two ETFs focused on providing exposure to the sector.

 

Consumer Discretionary Select Sector SPDR Fund XLY

 

This fund seeks to provide exposure to consumer discretionary stocks and tracks the Consumer Discretionary Select Sector Index. It has AUM of $13.6 billion and charges a low fee of 14 basis points a year. It has 84 holdings and bears significant concentration risk as almost 57% of the assets are allocated to the top 10 holdings.

 

From a sector look, the fund has high exposure to Media, Internet & Catalog Retail and Speciality Retail, with 24.1%, 22.4% and 18.0% exposure, respectively (as of Sep 30, 2017). The fund’s top three holdings are Amazon.com Inc AMZN, Home Depot Inc HD and Comcast Corp A CMCSA with 17.1%, 7.8% and 6.7% allocation, respectively (as of Jan 5, 2017).  The fund has returned 24.4% in a year. XLY has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

 

Vanguard Consumer Discretionary ETF VCR

 

This fund seeks to provide exposure to consumer discretionary stocks and tracks the MSCI US Investable Market Consumer Discretionary 25/50 Index. It has AUM of $2.5 billion and charges a fee of 10 basis points a year. It has 374 holdings and bears significant concentration risk as almost 46.2% of the assets are allocated to the top 10 holdings.

 

From a sector look, the fund has high exposure to Internet & Direct Marketing Retail, Cable & Satellite and Home Improvement Retail, with 20.4%, 9.2% and 8.3% exposure, respectively (as of Nov 30, 2017). The fund’s top three holdings are Amazon.com Inc, Home Depot Inc and Comcast Corp A with 14.1%, 6.2% and 5.2% allocation, respectively (as of Nov 30, 2017). The fund has returned 24.1% in a year. VCR has a Zacks ETF Rank #3 with a Medium risk outlook.

 

Bottom Line

 

XLY is more popular than VCR, as is evident from its higher AUM. However, VCR may be more appealing to investors owing to its cheaper expense ratio.  Moreover, VCR also has a more diversified exposure in terms of the number of holdings.

 

At the same time, both the funds have had relatively similar performance. XLY returned 0.3% more than VCR in the last year. With growing optimism in the markets, these ETFs are poised to offer better growth potential. After the passage of Trump’s tax reform, investors are more optimistic about other pro-business policies promised.

 

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The Consumer Discretionary sector has been attracting a lot of investor attention lately. Robust consumer demand and appealing trends in the U.S. economy seem to be driving the sector.

Cause for Appeal

Consumer spending accounts for more than 70% of U.S. economic output. Consumer spending increased 0.6% in November compared with 0.2% in the prior month, per data released by the Commerce Department. Spending topped forecasts of 0.5% in a Bloomberg survey. 

Coming to employment, Bureau of Labor Statistics reported that the U.S. economy added 148,000 jobs in December. Although this was below the 190,000 number expected by economists, unemployment rate stood at 4.1% in December, the lowest level since the year 2000.

GDP increased 3.2% year over year in the third quarter of 2017 compared with 3.1% in the second quarter. Moreover, President Donald Trump’s tax reform was recently signed into law. As a result, Fed members increased their expectations for 2018 GDP growth from 2.1% to 2.5%.

Let us now discuss two ETFs focused on providing exposure to the sector.

Consumer Discretionary Select Sector SPDR Fund (XLY)

This fund seeks to provide exposure to consumer discretionary stocks and tracks the Consumer Discretionary Select Sector Index. It has AUM of $13.6 billion and charges a low fee of 14 basis points a year. It has 84 holdings and bears significant concentration risk as almost 57% of the assets are allocated to the top 10 holdings.

From a sector look, the fund has high exposure to Media, Internet & Catalog Retail and Speciality Retail, with 24.1%, 22.4% and 18.0% exposure, respectively (as of Sep 30, 2017). The fund’s top three holdings are Amazon.com Inc (AMZN), Home Depot Inc (HD) and Comcast Corp A (CMCSA) with 17.1%, 7.8% and 6.7% allocation, respectively (as of Jan 5, 2017).  The fund has returned 24.4% in a year. XLY has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Vanguard Consumer Discretionary ETF (VCR)

This fund seeks to provide exposure to consumer discretionary stocks and tracks the MSCI US Investable Market Consumer Discretionary 25/50 Index. It has AUM of $2.5 billion and charges a fee of 10 basis points a year. It has 374 holdings and bears significant concentration risk as almost 46.2% of the assets are allocated to the top 10 holdings.

From a sector look, the fund has high exposure to Internet & Direct Marketing Retail, Cable & Satellite and Home Improvement Retail, with 20.4%, 9.2% and 8.3% exposure, respectively (as of Nov 30, 2017). The fund’s top three holdings are Amazon.com Inc, Home Depot Inc and Comcast Corp A with 14.1%, 6.2% and 5.2% allocation, respectively (as of Nov 30, 2017). The fund has returned 24.1% in a year. VCR has a Zacks ETF Rank #3 with a Medium risk outlook.

Bottom Line

XLY is more popular than VCR, as is evident from its higher AUM. However, VCR may be more appealing to investors owing to its cheaper expense ratio.  Moreover, VCR also has a more diversified exposure in terms of the number of holdings.

At the same time, both the funds have had relatively similar performance. XLY returned 0.3% more than VCR in the last year. With growing optimism in the markets, these ETFs are poised to offer better growth potential. After the passage of Trump’s tax reform, investors are more optimistic about other pro-business policies promised.

Want key ETF info delivered straight to your inbox?

 

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Home Depot, Inc. (The) (HD) : Free Stock Analysis Report
 
Comcast Corporation (CMCSA) : Free Stock Analysis Report
 
SPDR-CONS DISCR (XLY): ETF Research Reports
 
VIPERS-CONS DIS (VCR): ETF Research Reports
 
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