Consumer Discretionary ETFs Leading This Earnings Season

The Q4 earnings season has been weak so far with growth materially below the pace set in the first three quarters of the year. Total earnings for 85.6% of the S&P 500 total market capitalization that has reported results so far are up 12.9% from the same period last year on 7.6% revenue growth. Earnings and revenue growth for the same cohort of companies was 25.1% and 9.5%, respectively, in the preceding earnings season.

Earnings and revenue beat ratio is also less encouraging with 66.5% beating EPS estimates and 62.4% beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 78.4% and 62.4%, respectively, in the Q3 earnings season. In fact, the Q4 EPS beat percentage is the lowest in more than five years.

Still, eight of the 16 Zacks sectors have posted double-digit earnings growth so far, while three sectors’ earnings growth is negative. If we go by the price impact in response to earnings announcement, conglomerates is spearing ahead with 5% gain in the sector, closely followed by gain of 3.6% for consumer discretionary and 3.1% for transport sectors (read: Strong Q4 Earnings Lift Transport ETFs Higher).

Total earnings for 90.8% of the consumer discretionary total market capitalization that has been reported so far is up 12.4% on revenue growth of 12.9%, with earnings and revenue beat ratio of 80.8% and 65.4%, respectively. While earnings beat ratio is the third strongest, revenue growth is the second-largest contributor to the S&P 500 index. Thanks to these trends, consumer discretionary ETFs are leading the pack this earnings season.

While most of them are rising over the past month, we have highlighted five that have been beating the broad market fund (AX:SPY) by wide margins.

Amplify Online Retail ETF IBUY

This ETF has attracted $294.5 million in its asset base. It offers global exposure to companies that derive 70% or more revenues from online and virtual retail by tracking the EQM Online Retail Index. The fund is home to 41 stocks that are widely diversified, with each holding less than 4.3% of assets. The product charges 65 bps in fees per year and has gained 8.2% in a month (read: Look Beyond December Retail Slump, 4 ETF Areas to Rebound).

ProShares Online Retail ETF ONLN

This is the first ETF focused exclusively on retailers that principally sell online. It follows the ProShares Online Retail Index, holding 21 stocks in its basket with Amazon (NASDAQ:AMZN) accounting for the largest share of 24.2% in the portfolio. The product has amassed $32.5 million in its asset base and charges 58 bps in annual fees from investors. It is up 7.7% in a month (read: Follow Loeb's 13-F Disclosure With ETF & Stock Strategies).

Global X E-commerce ETF EBIZ

This ETF seeks to invest in companies positioned to benefit from the increased adoption of e-commerce as a distribution model, including companies whose principal business is in operating e-commerce platforms, providing e-commerce software and services, and/or selling goods and services online. It tracks the Solactive E-commerce Index and holds a well-diversified portfolio of 41 stocks with none making up for more than 4.64%. EBIZ has newly debuted in the space and has accumulated $1.6 million in its asset base within three months. It charges 68 bps in annual fees and has gained 7.2% in a month.

Invesco S&P 500 Equal Weight Consumer Discretionary ETF (HN:RCD)

This ETF offers equal weight exposure to companies in the consumer discretionary sector by tracking the S&P 500 Equal Weight Consumer Discretionary Index. It holds 65 securities in the basket with none accounting for more than 2% share. The product has amassed $87.2 million in its asset base while charges 40 bps in annual fees from investors. It has added 7.1% in a year and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

First Trust Consumer Discretionary AlphaDEX Fund FXD

This fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. This approach results in a basket of 111 stocks that are well spread out across components, with each holding less than 1.9% of assets. FXD has AUM of $320.5 million and charges a higher 64 bps in annual fees. It has gained 6.7% in a month and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: U.S. Consumer Sentiment Hit by Shutdown: ETFs in Focus).

Bottom Line

The uptrend is likely to continue given that Americans are willing to spend more this year. Per the Survey of Consumer Expectations conducted in December, the average expected growth in spending would rise to 2.8% from 2.3% last year. This will translate into more profits for the consumer discretionary sector.

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