VCR: Fueled By Amazon, But Weighed Down By Tesla

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Diy13 Investment Thesis Vanguard Consumer Discretionary ETF (NYSEARCA:VCR) is a hold due to multiple key risk factors impacting its return potential. While Amazon (AMZN) is a dominant holding for the ...

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While Amazon (AMZN) is a dominant holding for the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4698519-vcr-fueled-by-amazon-but-weighed-down-by-tesla\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"VDC","symbol_name":"日常消费品ETF-Vanguard","start_time":0,"source_url":"https://seekingalpha.com/article/4698519-vcr-fueled-by-amazon-but-weighed-down-by-tesla","article_id":"2442366723","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1352663713/image_1352663713.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2442366723","pubTimestamp":1718082595,"columns":[],"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Diy13 Investment Thesis Vanguard Consumer Discretionary ETF (NYSEARCA:VCR) is a hold due to multiple key risk factors impacting its return potential. 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While Amazon (AMZN) is a dominant holding for the fund that has defended its market share and profit margin, Tesla (TSLA) will likely drag the fund down due to stiff competition driving its prices lower. Additionally, the consumer discretionary sector has historically seen sharp declines in the event of recessions and pullbacks in consumer spending. Multiple metrics exist that point towards a weak consumer position in the event of an economic slowdown such as a low savings rate and high credit card debt that could exacerbate this risk factor. Fund Overview and Compared ETFs VCR is a passively managed exchange-traded fund that seeks to capture a representative mix of holdings that a consumer may purchase on a discretionary basis. With its inception in 2004, the Vanguard fund has 303 holdings and $6.06B in AUM. VCR includes predominantly broadline retail companies (26.2%), followed by automobile manufacturers (12.8) and restaurants (11.6%). For comparison purposes, other funds examined are Fidelity MSCI Consumer Discretionary Index ETF (FDIS), Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RSPD), and Invesco S&P SmallCap Consumer Discretionary ETF (PSCD). FDIS is the most similar fund to VCR as it focuses predominantly on large cap holdings with 63.95% weight. The key difference for RSPD compared to VCR is that RSPD utilizes an equal weight strategy and predominantly consists of mid-cap holdings at 61.38% weight. PSCD is market cap weighted but focuses on small cap consumer discretionary holdings. Performance, Expense Ratio, and Dividend Yield VCR has seen a 10-year average annual return of 12.53%. This is just slightly lower than the S&P 500’s 10-year average annual return of 12.7%. FDIS performed the best of consumer discretionary funds compared with a 10-year average annual return of 12.86%. Equal-weighted RSPD and small-cap focused PSCD saw the weakest performance with 10-year average annual returns of 7.97% and 9.77%, respectively. 10-Year Total Price Return: VCR and Compared Consumer Discretionary Funds (Seeking Alpha) In line with Vanguard’s brand, VCR has a low expense ratio of just 0.10%. This is on par with other sector-based Vanguard ETFs. Only Fidelity’s FDIS has a lower expense fund at 0.08%. VCR has an average dividend yield compared with peers at 0.81%. Expense Ratio, AUM, and Dividend Yield Comparison     VCR FDIS RSPD PSCD   Expense Ratio 0.10% 0.08% 0.40% 0.29%   AUM $6.06B $1.40B $376.02M $27.99M   Dividend Yield TTM 0.81% 0.77% 1.06% 1.09%   Dividend Growth 5 YR CAGR 3.54% 3.40% -0.66% 10.03%   Click to enlarge Source: Seeking Alpha, 10 Jun 24 VCR Holdings and Key Outlook Factors VCR is the most diversified fund compared with over 300 consumer discretionary holdings. However, over one-third of the Vanguard fund’s weight is on its top two holdings, Amazon and Tesla. Looking at all its top 10 holdings, VCR has a concentrated 57.4% weight. Due to their broad-based sector indexes, VCR has numerous similarities with FDIS. However, RSPD’s equal weight and PSCD’s small cap focus drives a unique mix of holdings for each of the funds. Top 10 Holdings for VCR and Peer Consumer Discretionary Funds   VCR – 303 holdings FDIS – 283 holdings RSPD – 53 holdings PSCD – 84 holdings   AMZN – 23.69% AMZN – 24.10% RCL – 2.39% ANF – 5.19%   TSLA – 10.17% TSLA – 9.86% CMG – 2.32% MTH – 3.62%   HD – 6.54% HD – 6.39% GM – 2.28% IBP – 2.89%   MCD – 3.88% MCD – 3.56% DPZ – 2.28% ABG – 2.83%   LOW – 2.63% BKNG – 2.66% GRMN – 2.27% SIG – 2.75%   BKNG – 2.47% LOW – 2.47% DECK – 2.27% VFC – 2.62%   NKE – 2.22% TJX – 2.31% HAS – 2.23% ASO – 2.40%   TJX – 2.11% NKE – 2.23% TJX – 2.21% GPI – 2.37%   SBUX – 1.98% SBUX – 1.75% BBY – 2.21% AEO – 2.33%   CMG – 1.71% CMG – 1.67% BKNG – 2.16% BOOT – 2.28%   Click to enlarge Source: Multiple, compiled by author on 10 Jun 24 Upon examining the prospects for VCR looking forward, we can see both reasons to be optimistic and cautionary. While Amazon, VCR’s #1 holding, has been able to maintain a strong eCommerce market share with top and bottom-line growth, Tesla has seen recent troubles. Additionally, the overall consumer discretionary sector has several distinct risk factors discussed further below. Consumer Discretionary: Steep Declines During Corrections The first risk factor for the consumer discretionary sector is its volatility, including steep declines. For example, VCR saw a decline of 34% from peak-to-trough between Dec 2021 and January 2023. By comparison, the overall S&P 500 saw a decline of around 24% during the same time period. While the consumer staples sector has seen lower returns historically, its price change in this time window was almost unnoticeable. Vanguard’s Consumer Staples ETF (VDC) is included below to illustrate this comparison. I have written multiple times, including an article on VDC, that I believe the market is due for a correction based on multiple indicators including the “Buffett Indicator” and the S&P 500's cyclically adjusted price-to-earnings ratio. If this turns out to be true, the consumer discretionary sector will likely experience worse than average performance. VCR Compared to S&P 500 and Consumer Staples (Seeking Alpha) The volatility of VCR compared to the market overall can be quantified by looking at its beta value and standard deviation. VCR has a high 5-year beta value of 1.32 compared to the overall market. Additionally, the fund has a high 5-year standard deviation of 25.85. By contrast, Vanguard’s consumer staples fund has a 0.63 beta with a 13.95 standard deviation. Therefore, despite strong long-term performance, investors should expect significantly higher volatility with consumer discretionary than most other sectors. Amazon: eCommerce Dominance Despite Increasing Competition Despite the volatility of the consumer discretionary sector, a key strength of VCR is its #1 holding, Amazon. Although online competition from Walmart and Target has been on the rise, Amazon’s revenue growth and gross profit margin have been holding strong. Walmart continues to dominate the brick-and-mortar commerce space but has not quite succeeded in capturing Amazon’s eCommerce business. In 2023, while Walmart saw a 44% increase in eCommerce growth, Amazon saw a stronger 97% increase. Amazon, Walmart, and Target eCommerce Growth (Census Bureau, Stratably) As a result of its successes, AMZN has seen a YoY quarterly increase to its net income of over 200% for the last three quarters consecutively. As a result, AMZN has seen a one-year price return of over 50%, surpassing both Microsoft (MSFT) and Apple (AAPL). However, this performance has also led to a higher valuation, as measured by its P/E ratio, for Amazon compared to both MSFT and AAPL. Tesla: Fighting to Keep Market Share Dominance While VCR’s #1 holding of Amazon is a positive quality, its #2 holding of Tesla is arguably a liability. While Elon Musk’s electric vehicle, or EV, company had almost 80% of the EV market in 2020, it dropped to 65% in 2022. Estimates put TSLA’s EV market share further down to 20% by 2025 because of pressure from competitors. This increase in competition has been seen in Tesla’s financials as well. Year-over-year, Tesla saw a significant decline in net income, down from $2.5B in 2023 Q1 to $1.1B in 2024 Q1. Interestingly, FDIS has outperformed while having a lower weight on TSLA. Tesla Reduced Market Share and Increasing Competition (S&P Global, Carscoops.com) As a result of increased competition and declining market share, Tesla has introduced more competitively priced vehicles including its Model 3. While Tesla has striven to sell the Model 3 for $35,000, it has not been quite able to achieve its goal and the current price tag is closer to $40,000. Even Jeep is heating up the competition with an electric Wagoneer. Therefore, unless Tesla can significantly accelerate its innovation compared to its competition, it will likely weigh down VCR and the consumer discretionary sector. How Tesla Can Turn Things Around Despite the above challenges, there are two potential areas where Tesla could make a comeback looking forward. The first is in competitive pricing. While the company has failed to deliver in the recent past, it has promoted a new Model 2 electric vehicle. Tesla has touted that this new Model 2 could have a price point as low as $25,000. Recent announcements have sent TSLA’s share price up temporarily, but the company has to deliver on these messages. The second game-changer for the company is in innovation. Tesla’s “Cybercab” promises to be a self-driving car that could greatly shift the autonomous driving space. Ark Invest projected that robotaxis could generate $28 trillion in revenue over the next decade. Either of these breakthroughs for Tesla represent a \"wild card\" for the industry and therefore an unknown looking forward for VCR's #2 holding. Current Valuation  VCR’s recent performance has closely tracked peer fund FDIS due to their similar tracked indexes. However, both have underperformed the broader S&P 500 predominantly due to the negative performance of Tesla with its -24% one-year price return. Despite an overall market that is expensive, AMZN holds a forward P/E of 40.7. In contrast, TSLA’s forward P/E stands at 80.2, despite its share price decline over the past year. One Year Performance: VCR and Peer Consumer Discretionary ETFs (Seeking Alpha) VCR demonstrates the least desirable valuation metrics looking at its price-to-earnings and price-to-book ratios. This is driven by the relatively high P/E ratios of Amazon and Tesla, as discussed previously. In contrast, small-cap focused PSCD has the lowest P/E and P/B values. I have written previously about how small caps have recently underperformed but are due for a comeback. This would allow small cap companies to return to their historically strong long-term trend. Valuation Metrics for VCR and Peer Competitors     VCR FDIS RSPD PSCD   P/E ratio 23.70 23.60 22.30 13.80   P/B ratio 4.60 4.58 3.99 2.06   Click to enlarge Source: Compiled by Author from Multiple Sources, 10 Jun 24 Risks to Investors As discussed, the consumer discretionary sector is subject to more volatility particularly in the event of a downturn. While recession has so far been avoided, a misstep by the U.S. Federal Reserve could result in a recession being realized. This would be exacerbated by both consumer debt and low savings. Recently, U.S. credit card debt hit a record high of $930 billion. More relevant than total debt is the delinquency rate, which has also been rising this year. In combination with credit card debt, the savings rate for Americans hit just 4.6% last year, an alarming low level. Risks to Thesis Beyond the potential already discussed for Tesla to make a comeback, my thesis could be incorrect for multiple reasons. The most prominent is the resiliency of the American consumer. Despite inflation, the possibilities of recession, and interest rate uncertainty, consumer spending has increased 3-4% from last year. Additionally, the U.S. economy added 272,000 jobs in May, significantly higher than the 190,000 jobs expected. Historically low unemployment along persistent consumer spending contribute to a robust consumer discretionary sector, boosting profits for top companies found within VCR. Concluding Summary  VCR is a low-cost fund that captures a diversified set of holdings within the consumer discretionary sector. While Amazon is a strong top holding for the fund, it will likely be weighed down by Tesla’s increasing market competition and reduced net profits. Additionally, while a recession has so far been avoided, the consumer discretionary sector sees more pronounced declines in recessionary periods than the market overall. To compound this risk, the American consumer currently has a low savings rate with high credit card debt on average. Therefore, while it is possible that Tesla could make a comeback and consumer spending could persist, I rate VCR as a hold due to the risk of sharp declines in the event of an economic slowdown.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2442366723"}