VCR: Consumer Discretionary Sector Dashboard For July

seekingalpha07-17

Julie Clopper This monthly article series shows a dashboard with aggregate subsector metrics in Consumer Discretionary. It is also a top-down analysis of sector ETFs like Consumer Discretionary Select...

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It is also a top-down analysis of sector ETFs like Consumer Discretionary Select...</p>\n\n<a href=\"https://seekingalpha.com/article/4704392-vcr-consumer-discretionary-sector-dashboard-for-july\">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":"LU0096364046.USD","symbol_name":"CT (LUX) I AMERICAN \"DU\" (USD) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4704392-vcr-consumer-discretionary-sector-dashboard-for-july","article_id":"2452536881","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/679693512/image_679693512.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2452536881","pubTimestamp":1721217600,"columns":[],"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Julie Clopper This monthly article series shows a dashboard with aggregate subsector metrics in Consumer Discretionary. 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It is also a top-down analysis of sector ETFs like Consumer Discretionary Select Sector SPDR Fund ETF (XLY) and Vanguard Consumer Discretionary Index Fund ETF Shares (NYSEARCA:VCR), whose largest holdings are used to calculate these metrics. Shortcut The next two paragraphs in italic describe the dashboard methodology. They are necessary for new readers to understand the metrics. If you are used to this series or if you are short of time, you can skip them and go to the charts. Base Metrics I calculate the median value of five fundamental ratios for each subsector: Earnings Yield (\"EY\"), Sales Yield (\"SY\"), Free Cash Flow Yield (\"FY\"), Return on Equity (\"ROE\"), Gross Margin (\"GM\"). The reference universe includes large companies in the U.S. stock market. The five base metrics are calculated on trailing 12 months. For all of them, higher is better. EY, SY and FY are medians of the inverse of Price/Earnings, Price/Sales, and Price/Free Cash Flow. They are better for statistical studies than price-to-something ratios, which are unusable or non-available when the \"something\" is close to zero or negative (for example, companies with negative earnings). I also look at two momentum metrics for each group: the median monthly return (RetM) and the median annual return (RetY). I prefer medians to averages because a median splits a set in a good half and a bad half. A capital-weighted average is skewed by extreme values and the largest companies. My metrics are designed for stock-picking rather than index investing. Value and Quality Scores I calculate historical baselines for all metrics. They are noted respectively EYh, SYh, FYh, ROEh, GMh, and they are calculated as the averages on a look-back period of 11 years. For example, the value of EYh for retailing in the table below is the 11-year average of the median Earnings Yield in retail companies. The Value Score (\"VS\") is defined as the average difference in % between the three valuation ratios (EY, SY, FY) and their baselines (EYh, SYh, FYh). In the same way, the Quality Score (\"QS\") is the average difference between the two quality ratios (ROE, GM) and their baselines (ROEh, GMh). The scores are in percentage points. VS may be interpreted as the percentage of undervaluation or overvaluation relative to the baseline (positive is good, negative is bad). This interpretation must be taken with caution: the baseline is an arbitrary reference, not a supposed fair value. The formula assumes that the three valuation metrics are of equal importance. A floor of -100 is set for VS and QS when the calculation goes below this value. It may happen when metrics in a subsector are very bad. Current data The next table shows the metrics and scores as of last week's closing. Columns stand for all the data defined above.     VS QS EY SY FY ROE GM EYh SYh FYh ROEh GMh RetM RetY   Auto + Components -9.01 -26.49 0.0619 1.1823 0.0328 10.44 20.10 0.0600 1.3829 0.0389 18.19 22.43 3.98% -9.16%   Durables + Apparel 12.85 17.72 0.0586 0.5647 0.0520 27.22 41.67 0.0532 0.7150 0.0348 18.94 45.43 -0.74% 16.89%   Retailing -11.88 5.95 0.0507 0.5318 0.0361 30.29 34.95 0.0488 0.8031 0.0383 26.40 35.97 2.06% 19.19%   Services 21.85 100* 0.0429 0.3489 0.0266 45.38 43.71 0.0304 0.3903 0.0197 15.01 35.96 3.62% 9.00%   Click to enlarge * capped for convenience. Value and Quality chart  The next chart plots the Value and Quality Scores by subsector (higher is better).   Value and Quality in consumer discretionary (Chart: author; data: Portfolio123) Evolution since last month Value scores continue declining, especially in the auto industry.   Evolution in value and quality (Chart: author; data: Portfolio123) Momentum The next chart plots momentum scores based on median returns.   Momentum in consumer discretionary (Chart: author; data: Portfolio123) Interpretation The consumer discretionary sector was undervalued by 3.9% relative to 11-year averages when I published my latest S&P 500 monthly dashboard. Consumer services are undervalued by about 23% relative to their historical baseline and have an excellent quality score, which makes them the most attractive subsector. Durables and apparel are moderately undervalued, while other subsectors are slightly overvalued. The auto and components industry looks quite unattractive, with both value and quality scores below the baseline. Focus on VCR Vanguard Consumer Discretionary Index Fund ETF Shares started investing operations on 01/26/2004 and tracks the MSCI US IMI Consumer Discretionary 25/50 Index. It has 304 holdings and a total expense ratio of 0.10% (XLY is at 0.09%). It is also available as a mutual fund (VCDAX). Fidelity MSCI Consumer Discretionary Index ETF (FDIS) tracks the same index for a marginally cheaper fee (0.08%). The next table shows the top 10 holdings with fundamental ratios and dividend yields. Their aggregate weight is 56.5%, with 40.4% in the top 3 names. Amazon alone represents over 23% of the fund’s asset value.   Ticker Name Weight EPS ttm growth% P/E ttm P/E fwd Yield%   AMZN Amazon.com, Inc. 23.44% 763.59 54.13 42.04 0   TSLA Tesla, Inc. 10.55% 15.14 64.56 104.07 0   HD The Home Depot, Inc. 6.46% -9.19 24.05 23.51 2.51   MCD McDonald's Corp. 3.48% 26.35 21.37 20.67 2.66   BKNG Booking Holdings Inc. 2.66% 30.75 30.66 23.16 0.86   LOW Lowe's Companies, Inc. 2.45% 21.29 18.65 19.09 1.98   TJX The TJX Cos., Inc. 2.38% 24.26 28.23 27.52 1.32   NKE NIKE, Inc. 1.74% 15.50 19.13 22.61 2.08   SBUX Starbucks Corp. 1.67% 17.72 20.03 20.26 3.13   CMG Chipotle Mexican Grill, Inc. 1.63% 26.72 60.42 50.65 0   Click to enlarge Ratios by Portfolio123. VCR has outperformed XLY by 62% in total return since 2/1/2004. However, the gap in annualized return is unimpressive: only 41 bps. The VCR ETF is also slightly more volatile. As a consequence, the two funds have almost the same risk-adjusted performance, measured by Sharpe ratio.     Total Return Annual. Return Drawdown Sharpe Volatility   VCR 752.89% 11.05% -61.54% 0.54 19.87%   XLY 690.59% 10.64% -59.05% 0.53 18.86%   Click to enlarge Data calculated with Portfolio123. In summary, VCR provides capital-weighted exposure to the consumer discretionary sector for a cheap expense ratio. It holds more stocks than XLY (currently 304 vs. 52), but it is also very concentrated in the top holdings, and it doesn’t make a significant difference in performance since 2004. VCR and XLY are equivalents for long-term investors, but XLY has higher trading volumes, making it a more appropriate instrument for short-term trading. Both funds are overweight in Amazon stock. Investors seeking a balanced portfolio may prefer Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RSPD). Dashboard List I use the first table to calculate value and quality scores. It may also be used in a stock-picking process to check how companies stand among their peers. For example, the EY column tells us that a retail company with an Earnings Yield above 0.0507 (or price/earnings below 19.72) is in the better half of the industry regarding this metric. A Dashboard List is sent every month to Quantitative Risk & Value subscribers, with the most profitable companies standing in the better half among their peers regarding the three valuation metrics at the same time. The stocks below are part of the list sent to subscribers a few weeks ago.   CRI Carter's, Inc.   CAL Caleres, Inc.   GPS Gap, Inc.   SIG Signet Jewelers Ltd.   VSCO Victoria's Secret & Co.   HIBB Hibbett, Inc.   MGM MGM Resorts International   CNK Cinemark Holdings, Inc.   SBH Sally Beauty Holdings, Inc.   Click to enlarge  It is a rotational model with a statistical bias toward excess returns on the long-term, not the result of an analysis of each stock.","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/2452536881"}