The PowerShares Dynamic Leisure and Entertainment Portfolio (NYSEArca: PEJ) is a different avenue to the consumer discretionary sector than traditional, cap-weighted exchange traded funds.
The $168.1 million PEJ, which is nearly 11 years old, follows the Dynamic Leisure & Entertainment Intellidex Index, which “is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value,” according to PowerShares.
In other words, PEJ represents a significant departure from an ETF like the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), the largest consumer discretionary ETF.
XLY, the largest consumer discretionary ETF by assets, includes exposure to retail firms, restaurants, media companies, apparel and luxury goods companies, automobile manufacturers and leisure industries.
Retailers make up a large portion of the underlying holdings. E-commerce and greater mobile commerce usage has also been a big game changer in the industry, especially with more consumers using online sources like Amazon, which XLY holds.
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As a focused play on leisure and travel stocks, PEJ excludes names such as Amazon (NasdaqGS: AMZN) and Home Depot (NYSE: HD) to focus on airlines and restaurants, among consumer discretionary industry groups.
“Included in the restaurant holdings are, once again, the top-tier casual dining companies McDonald’s Corp. and Starbucks, as well as what might be best described as second-tier casual dining companies such as Sonic Corp. and Domino’s Pizza, for examples. It should be noted that there are far more casual dining companies here than meets the eye,” according to a Seeking Alpha analysis of PEJ.
PEJ devotes 36 percent of its weight to airline stocks while 12 of the ETF’s 30 holdings are restaurant companies, running the gamut of fast-food names to high-end eateries. This year, it has been restaurant stocks helping the broader consumer discretionary sector.
“We can blame retail for a big portion of the performance problem. The Dow Jones U.S. Restaurants index, on the other hand, actually soared to a 52-week high with mostly solid technicals. Even after its nice gains it continues to lag the S&P 500 since the start of the year,” according to Barron’s.
The hospitality group’s growth may reflect consumer’s changing preferences. Data from JPMorgan Chase Institute revealed that people are spending on experiences rather than shopping, according to the Business Journal. Specifically, most consumers were spending money on restaurants and “other services,” forgoing durable goods and choosing small- and medium-sized businesses over larger ones.
[related_stories]PowerShares Dynamic Leisure and Entertainment Portfolio
