XLY: Consumer Discretionary Dashboard For August

seekingalpha08-18

Monthly article series with subsector metrics in consumer discretionary.The sector as a whole is close to 11-year averages in valuation metrics, and consumer services are the most attractive subsector...

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href=https://seekingalpha.com/article/4715447-xly-consumer-discretionary-dashboard-for-august><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Monthly article series with subsector metrics in consumer discretionary.The sector as a whole is close to 11-year averages in valuation metrics, and consumer services are the most attractive subsector...</p>\n\n<a href=\"https://seekingalpha.com/article/4715447-xly-consumer-discretionary-dashboard-for-august\">Source 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metrics in consumer discretionary. It is also a top-down analysis of sector ETFs like Consumer Discretionary Select Sector SPDR Fund ETF (NYSEARCA:XLY), Fidelity MSCI Consumer Discretionary Index ETF (FDIS) and Vanguard Consumer Discretionary Index Fund ETF Shares (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). 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 writing. Columns stand for all the data defined above.     VS QS EY SY FY ROE GM EYh SYh FYh ROEh GMh RetM RetY   Auto + Components -1.59 -23.93 0.0624 1.1621 0.0416 11.15 20.32 0.0600 1.3743 0.0390 18.11 22.43 -9.78% -5.04%   Durables + Apparel 6.85 21.07 0.0597 0.5598 0.0454 28.40 42.01 0.0532 0.7153 0.0349 18.99 45.39 1.71% 27.83%   Retailing -16.24 1.90 0.0500 0.5675 0.0298 28.16 35.02 0.0488 0.7993 0.0383 26.46 35.97 -0.63% 20.04%   Services 18.42 100*   0.3821 0.0235 44.96 43.79 0.0304 0.3896 0.0198 15.18 36.05 -0.86% 12.83%   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 The value score has improved in auto and components, and deteriorated in other subsectors.   Variations 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 Based on my latest S&P 500 dashboard, the consumer discretionary sector is close to 11-year averages in valuation metrics. Consumer services are the most attractive subsector, undervalued by about 18% relative to the historical baseline and showing an excellent quality score. To a lesser extent, durables and apparel also have good value and quality scores. The auto and components subsector is close to its baseline in value, and below it in quality. The opposite is true for retailing. Fast facts on XLY Consumer Discretionary Select Sector SPDR Fund started investing operations on 12/16/1998 and tracks the Consumer Discretionary Select Sector Index. It has 52 holdings and a total expense ratio of 0.09%, similar to other capital-weighted sector ETFs like VCR (0.10%) and FDIS (0.08%). The fund is well-balanced across four major industries: specialty retail (24% of asset value), hotels restaurants & leisure (22.8%), broadline retail (22.6%), and automobiles (18.8%).   Industry breakdown (Chart: author; data: SSGA) The next table shows the top 10 holdings with some fundamental ratios. The portfolio is very concentrated: they represent 70.8% of asset value, including 37.8% in the top two names, Amazon and Tesla.   Ticker Name Weight% EPS growth % TTM P/E TTM P/E fwd Yield%   AMZN Amazon.com, Inc. 21.65 231.89 42.42 37.45 0   TSLA Tesla, Inc. 16.20 1.02 60.70 96.47 0   HD The Home Depot, Inc. 9.73 -7.19 24.36 24.22 2.49   MCD McDonald's Corp. 4.75 5.19 24.37 23.64 2.40   LOW Lowe's Companies, Inc. 3.79 21.29 19.37 19.94 1.91   TJX The TJX Cos., Inc. 3.49 24.26 27.64 26.96 1.35   BKNG Booking Holdings Inc. 3.40 23.33 25.34 20.50 0.97   SBUX Starbucks Corp. 2.95 8.64 26.57 26.62 2.40   NKE NIKE, Inc. 2.76 15.47 22.34 26.51 1.78   CMG Chipotle Mexican Grill, Inc. 2.05 27.44 51.42 48.14 0   Click to enlarge Ratios by Portfolio123 XLY has outperformed the S&P 500 (SPY) by 1.2% in annualized return since January 1999. Due to a higher risk measured in standard deviation of monthly returns (“volatility” in the next table), XLY is on par with the benchmark in risk-adjusted performance (Sharpe ratio).     Total Return Annual. Return Drawdown Sharpe Volatility   XLY 842.41% 9.15% -59.05% 0.45 19.34%   SPY 609.98% 7.95% -55.19% 0.45 15.30%   Click to enlarge Data calculated with Portfolio123 However, XLY lags SPY by 16.5% over the last 12 months.   XLY vs. SPY, 12-month total return (Seeking Alpha) In summary, XLY is a fund with a cheap expense ratio for investors seeking capital-weighted exposure in consumer cyclicals. FDIS and VCR are equivalents to XLY for long-term investors, but the latter has much higher trading volumes, making it a better instrument for trading and tactical allocation. Investors who are concerned by the heavy weights of Amazon and Tesla may prefer the 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 0.0500 (or price/earnings below 20) 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 The Gap, Inc.   SIG Signet Jewelers Ltd.   VSCO Victoria's Secret & Co.   ASO Academy Sports and Outdoors, 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":0},"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/2460152517"}