The consumer discretionary sector’s 2014 tale of woe has been discussed aplenty this year. To make a long story short, the sector, which had been a consistent leader over the three years ending 2013, is the worst performer in the S&P 500 this year.
Identifying the sector’s offenders is not difficult. Stocks such as Amazon (NasdaqGS: AMZN) have been problematic for traditional consumer discretionary exchange traded funds. Home Depot (NYSE: HD), another mainstay in many discretionary ETFs, is one of the worst-performing stocks in the Dow Jones Industrial Average this year. [Discreet Decline of Discretionary ETFs]
To be fair, the likes of the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) and the Vanguard Consumer Discretionary ETF (NYSEArca: VCR) have recently been showing signs of life. The two have an average year-to-date gain of just 2%, but are up an average of nearly 3% in just the past month. [Discretionary ETFs Show Signs of Life]
If the sector’s rebound is legitimate, another ETF to consider is the First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD). Just over 35 ETFs have made new all-time highs at this point in Wednesday’s trading session. FXD is one of them. The ETF is up 4.5% this year, easily outpacing its cap-weighted rivals.
FXD uses the AlphaDEX methodology that has helped make First Trust one of the fastest growing U.S. ETF sponsors. As with the other AlphaDEX sector ETFs, FXD’s holdings are selected based on “growth factors including 3-, 6- and 12-month price appreciation, sales to price and one year sales growth, and separately on value factors including book value to price, cash flow to price and return on assets,” according to First Trust.
FXD also does not allocate more than 1.5% of its weight to any of its 137 holdings, which diminishes the vulnerability to laggard performance by some of the discretionary sector’s marquee names such as Amazon and Home Depot.