Making its debut on 11/01/2006, smart beta exchange traded fund Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD) provides investors broad exposure to the Consumer Discretionary ETFs category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
RCD is managed by Invesco, and this fund has amassed over $367.43 million, which makes it one of the larger ETFs in the Consumer Discretionary ETFs. Before fees and expenses, RCD seeks to match the performance of the S&P 500 Equal Weight Consumer Discretionary Index.
The S&P 500 Equal Weight Consumer Discretionary Index equally weights stocks in the consumer discretionary sector of the S&P 500 Index.
Cost & Other Expenses
When considering an ETF’s total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
With one of the cheaper products in the space, this ETF has annual operating expenses of 0.40%.
The fund has a 12-month trailing dividend yield of 1%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it’s still important for investors to research a fund’s holdings.
RCD’s heaviest allocation is in the Consumer Discretionary sector, which is about 100% of the portfolio.
When you look at individual holdings, Etsy Inc (ETSY) accounts for about 2.26% of the fund’s total assets, followed by Tesla Inc (TSLA) and Chipotle Mexican Grill Inc (CMG).
The top 10 holdings account for about 19.75% of total assets under management.
Performance and Risk
The ETF has lost about -22.72% and is down about -22.84% so far this year and in the past one year (as of 11/11/2022), respectively. RCD has traded between $104.82 and $160.55 during this last 52-week period.
The fund has a beta of 1.31 and standard deviation of 32.83% for the trailing three-year period, which makes RCD a medium risk choice in this particular space. With about 60 holdings, it effectively diversifies company-specific risk.
Invesco S&P 500 Equal Weight Consumer Discretionary ETF is a reasonable option for investors seeking to outperform the Consumer Discretionary ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Consumer Discretionary ETF (VCR) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF (XLY) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $4.26 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $14.24 billion. VCR has an expense ratio of 0.10% and XLY charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Consumer Discretionary ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD): ETF Research Reports
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
Etsy, Inc. (ETSY) : Free Stock Analysis Report
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
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