Every weekday TPA provides the TPA Risk Dashboard, which shows relative performance of different parts of the market; by market cap, growth vs. value, and sectors vs. the overall market. Performance is measured in various intervals to give a sense of performance patterns that are forming. The clear winner for the past 6 months has been the Consumer Discretionary sector. XLY has been the #1 (out of 11 sectors measured) in the 6-month, 3 months 1, month, and 5-day time periods. The 1st chart below shows that XLY is up 26% in the past 3 months, while the S&P500 is only up 12%. Given that the winner of the recent presidential election prevailed because of Consumer unhappiness, this may seem strange until one takes a closer look at XLY and understands that performance of 2 stocks has masked the true underlying weaknesses in the Consumer Discretionary sector.
The table below reveals that XLY is not a balanced ETF. The 2 top members, AMZN and TSLA, make up 40% of the entire ETF. AMZN makes up 22.38% and TSLA makes up 17.96% of XLY.
Using the even-weighted Consumer Discretionary ETF RSP, we can get a clearer understanding of the Consumer Discretionary sector. The relative performance chart below includes the S&P500, XLY, RSP, AMZN and TSLA. Year to date, the even-weighted Consumer Discretionary ETF RSP is only up 18%, far underperforming the market (S&P500), which is up 25%.
The 3-month relative performance chart shows an even greater disparity with S&P500 +12%, XLY+26%, RSP +11%, AMZN +23%, TSLA +75%.
Clients should not be fooled or confused by the top-heavy ETFs. Diving deeper into the makeup of XLY reveals that the performance of 2 stocks has masked the true underlying weaknesses in the Consumer Discretionary sector.
Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.
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