Best And Worst Q1’16: Consumer Discretionary ETFs, Mutual Funds And Key Holdings

By | January 28, 2016

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The Consumer Discretionary sector ranks fifth out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Consumer Discretionary sector ranked fourth. It gets our Neutral rating, which is based on aggregation of ratings of 13 ETFs and 19 mutual funds in the Consumer Discretionary sector. See a recap of our Q4’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFS and mutual funds in the sector. Not all Consumer Discretionary sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 385). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Consumer Discretionary sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The PowerShares Dynamic Retail Portfolio (NYSEARCA: PMR ) is excluded from Figure 1 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The ICON Consumer Discretionary Fund (MUTF: ICCCX ) and the Rydex Series Leisure Fund (MUTF: RYLIX ) (MUTF: RYLAX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The PowerShares DWA Consumer Cyclicals Momentum Portfolio (NYSEARCA: PEZ ) is the top-rated Consumer Discretionary ETF and the Fidelity Select Leisure Portfolio (MUTF: FDLSX ) is the top-rated Consumer Discretionary mutual fund. PEZ earns an Attractive rating and FDLSX earns a Very Attractive rating. The PowerShares Dynamic Media Portfolio (NYSEARCA: PBS ) is the worst-rated Consumer Discretionary ETF and the Rydex Series Retailing Fund (MUTF: RYRTX ) is the worst-rated Consumer Discretionary mutual fund. PBS earns a Neutral rating and RYRTX earns a Very Dangerous rating. 457 stocks of the 3000+ we cover are classified as Consumer Discretionary stocks. Tupperware Brands (NYSE: TUP ) is one of our favorite stocks held by FDLSX and earns our Very Attractive rating. Tupperware also lands on January’s Most Attractive Stocks list. Over the past decade, Tupperware has grown after-tax profits ( NOPAT ) by an impressive 12% compounded annually. Over the same time frame, the company has improved its return on invested capital ( ROIC ) from 13% to its current top quintile 18%. In light of its long-term record of growing profits, Tupperware shares are undervalued. At its current price of, TUP has a price to economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects Tupperware’s NOPAT to permanently decline by 10%. If Tupperware can grow NOPAT by just 6% (half its historical rate) compounded annually over the next decade , the stock is worth $94/share today – an 88% upside. Netflix (NASDAQ: NFLX ) continues to be one of our least favorite stocks held by RYRTX and earns our Dangerous rating. We’ve long been critical of the rampant overvaluation in Netflix shares. Since 2004, the company’s ROIC has fallen from 142% to a bottom quintile 5% over the trailing twelve months (TTM). Additionally, Netflix’s NOPAT margin has declined from 5% to 3% over this same timeframe. Along with decelerating revenues, Netflix’s rising content costs have caused the company to hemorrhage cash. However, NFLX remains significantly overvalued. To justify its current price the company must grow NOPAT by 28% compounded annually for 24 years . In this scenario, Netflix would generate over $5 trillion in profit, which at current subscription prices implies the company’s user base will be 43.9 billion. It’s pretty easy to see just how overvalued Netflix remains. Figures 3 and 4 show the rating landscape of all Consumer Discretionary ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme. Scalper1 News

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