The consumer discretionary sector has taken its lumps this year, which is understandable as it is the worst-performing group in the S&P 500.
With Thursday’s 1.7% loss, the Vanguard Consumer Discretionary ETF (NYSEArca: VCR) is now saddled with a slight year-to-date loss. VCR and other market capitalization-weighted discretionary ETFs have been hindered by some of the sectors most familiar names.
Amazon (NasdaqGS: AMZN) is back in bear market territory while Home Depot (NYSE: HD), another major component in many discretionary ETFs, is one of the worst-performing stocks in the Dow Jones Industrial Average this year. [Behind the Fall of Discretionary ETFs]
The Guggenheim S&P Equal Weight Consumer Discretionary ETF (NYSEArca: RCD) has been a little bit better and still clings to a slight year-to-date gain. Given the struggles of some of the sector’s marquee names, including Amazon, Home Depot and Twenty-First Century Fox (NasdaqGS: FOXA), an equal-weight approach to discretionary stocks with RCD could be the way to prepare for a rebound by the sector.
“But diversification is still the #1 priority, so I’d build the base of my cyclical holdings around an equal weight sector ETF like the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF, which has an expense ratio of 0.5% and a broad mix of over 80 holdings. No holding is over 1.5% of the RCD,” according to Capital Cube.
The equal-weight methodology, which has proven rewarding with other sectors, including energy, reduces RCD’s exposure to laggards in a sector rife with such names. [Equal-Weight Works With Energy ETF]