With Lehman Brothers, Merrill Lynch and AIG dominating the financial headlines this week, ETF Momentum Tracker has isolated one sector weathering the storm: consumer services. iShares Consumer Services (IYC) has shot up ETF Momentum Tracker’s ratings in recent weeks, moving from the no. 29 position on Aug. 12 to the no. 11 position on September 16.
While consumer services skeptics grapple for more ammunition in the midst of the equity fallout, Don Dion, publisher of ETF Momentum Tracker, believes that IYC “has held up well and may offer value whenever recovery takes hold.”
Through Sept. 12, IYC ranked among the top 1% of Large Growth ETFs for one-month (0.0%), three-month (-0.1%), and year-to-date (-4.6%) returns, holding a nearly nine-percentage-point lead over the S&P 500 for 2008. Of the 12 major stock sectors tracked by Morningstar, the consumer services sector is the only one with a positive return over the year-to-date (3.3%) and one-year (4.5%) periods.
“Senator Obama is focused on helping the homeowner and consumer,” Dion noted in a recent election conference, “whether Senator Obama or Senator McCain take office in January, investors should reposition their portfolios ahead of the elections.”
With a broad 222-stock mix, Dion believes that IYC could be a “good addition to some portfolios” as the election approaches. Top fund holdings like Wal-Mart (WMT) and McDonald’s (MCD) gave garnered impressive returns recently as the broader market has sustained heavy blows.
The fund is also undervalued by almost 15%, according to Morningstar, which on Sept. 12 set IYC’s fair value estimate at $68.63, compared to the market price of less than $59. The fund’s price-to-prospective earnings ratio is 15.3, about 10% higher than the S&P 500’s.
Many economists and analysts have been questioning the strength of the consumer for years, both at home and abroad. Dion, however, believes that “shareholders would be wise to keep an eye on Wall Street’s view of consumer spending, but IYC has survived some difficult times and appears well-poised for a future recovery.”
Fidelity Independent Adviser’s Dion and Federated Investors’ Phil Orlando have posted their market and election analysis at Dion's website.
ETF Momentum Tracker is a member of Fidelity Independent Adviser’s family of publications. With more than 70,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes four monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.
About Don Dion (dionmm.com), Publisher of ETF Momentum Tracker
In addition to his role as publisher of the Fidelity Independent Adviser family of newsletters (fidelityindependentadviser.com), Mr. Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Massachusetts, Dion Money Management manages more than $700 million in assets for clients in 49 states and 11 countries. A licensed attorney in Massachusetts and Maine, Mr. Dion has more than 25 years’ experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.