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

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.

Cold Snap Warms Up Natural Gas ETFs

Natural gas prices were thwarted by sluggish trends with the energy market rout and a milder winter so far this year. Among the issues hurting the broader energy space, ample supplies and falling demand on global growth worries are primary. This, along with considerably warmer temperature in December (due to a protracted and stronger El Nino) played foul, taking natural gas futures to a 14-year low (read: No Winter Cheer for Natural Gas ETFs?). As a result, most of the exchange traded products tracking natural gas are in red this year defying seasonal strength. Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region putting natural gas in focus. In fact, in 2014, the Polar Vortex caused natural gas prices to jump over 50%. Winter Storm Jonas to Rescue This year, the winter storm Jonas recently salvaged this besieged commodity. The whiteout struck on the East Coast, with icy temperatures and a snow emergency bolstering demand for natural gas for a valid reason. As almost 50% of Americans use natural gas for heating purposes, withdrawals in natural gas supplies push up the commodity’s prices. The U.S. Energy Information Administration also gave same cues on Thursday when it declared the largest weekly drawdown of gas from storage this winter, as per Wall Street Journal. Natural-gas prices went ‘above $5 per million British thermal units in parts of the Northeast for the first time since last winter’, as indicated by Wall Street Journal. If such sub-zero temperatures continue even after the snow storm, it will bring a great deal of luck for natural gas, albeit for the short term. ETF Impact In fact, an ETF tracking the natural gas futures – United States Natural Gas ETF (NYSEARCA: UNG ) -added about 0.13% on January 22. Investors should note that natural gas equities, such as First Trust ISE-Revere Natural Gas Index Fund (NYSEARCA: FCG ), were the real winner that added 5.2% on January 22. Below we highlight a couple of natural gas ETFs that investors could use to play if the U.S. economy remains snowed in the near term (see all Energy ETFs here). iPath Dow Jones-UBS Natural Gas ETN (NYSEARCA: GAZ ) This is an ETN option for natural gas investors. It delivers returns through an unleveraged investment in the natural gas futures contract plus the rate of interest on specified T-Bills. The product follows the Dow Jones-UBS Natural Gas Total Return Sub-Index. The note is less popular with AUM of $4.9 million. It is a high-cost choice, charging 75 bps in annual fees. GAZ is down 30.6% in the year-to-date frame and gained about 2% on January 22, 2016. FCG in Focus This product offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows ISE-REVERE Natural Gas Index and holds 30 stocks in its basket, which are well spread out across components (read: 5 ETFs Losing Half or More of Their Value in 2015 ). Southwestern Energy Company, Antero Resources Corporation and Gulfport Energy Corporation occupy the top three positions in the portfolio with a combined 16% of total assets. This indicates that no single company dominates the fund’s returns, preventing heavy concentration. The fund has a blended style and is diversified across various market cap levels with 53% in small caps, 31% in mid caps and the rest in large caps. The product has amassed $132.7 million in its asset base while sees solid volume of nearly 2.5 million shares per day. It charges 60 bps in annual fees from investors and has a Zacks ETF Rank of 3 (Hold) with a High risk outlook. The fund is down 13.7% so far this year (as of January 22, 2016). Bottom Line Though there have been some incredible price increases lately in the natural gas market despite weak demand-supply fundamentals, the commodity is due for a price reversal. The weather will likely warm up across the country with the advent of spring and natural gas demand will trip up then. This is truer in the light of the fact that present stockpiles are pretty higher than the five-year average and the year-ago level. So, investors solely relying on a weather play might proceed with a short-term notion. Original Post