Consumer ETFs Slip as Wal-Mart Guides Earnings Lower - ETF News And Commentary
February 04 2014 - 8:00AM
Zacks
The luster is seemingly not returning for
Wal-Mart Stores
Inc. (
WMT), at least not
in this fiscal year. The retail giant has seen underperformances on
top- and bottom-line estimates for most of the year. To add to its
woes, the staples behemoth has cut its fiscal 2014 view thrice in
one year with the latest trimming, though marginal, announced on
January 31.
Reduced Wal-Mart Outlook
Wal-Mart – due for earnings release on February 20 – anticipates
adjusted earnings per share from continuing operations to be at, or
slightly below, the low end of the range of $1.60 to $1.70 for the
fourth quarter. For the full year, the company expects earnings to
be on par or slightly lower than the low end of the range $5.11 to
$5.21 per share.
Investors should note that, in concurrence with the Q3 earnings
release, Wal-Mart had revised its adjusted earnings expectations
from a range of $5.10– $5.30 to $5.11–$5.21 per share. Prior to
this, with the release of 2Q earnings, Wal-Mart lowered its
earnings expectations from a range of $5.20–$5.40 to $5.10–$5.30
per share. A challenging sales environment and currency headwinds
were held responsible for this lowered outlook.
Market Impact
Quite expectedly, Wal-Mart slipped into the red in the key trading
session shedding 0.09%. The stock also fell 0.20% in after-hours
trading. The slump was also felt in the ETF space, with consumer
staples ETFs having considerable exposure to Wal-Mart being largely
hit.
Funds like
Market Vectors Retail ETF
(RTH), Consumer
Staples Select Sector SPDR
(XLP) and
Consumer Staples ETF
(VDC) have the biggest
allocations in Wal-Mart
. The trio had seen
sluggish trading last Friday. RTH fell1.27% at the close of January
31 while XLP fell 0.49% and VDC lost 0.41%.
Notably, apart from the weak Wal-Mart guidance, there were other
reasons that went against these funds. An earnings miss from the
top allocation
Amazon
(AMZN) (8.55%) caused
substantial loss for RTH while it also put a shadow over the rest
of the sector (read: 3 ETFs to Watch on Amazon Earnings Miss).
RTH in Focus
This fund provides exposure to the 26 top retail firms by tracking
the Market Vectors U.S. Listed Retail 25 Index. Of these, AMZN
takes the top spot at 8.86%. The product has amassed $38.7 million
in its asset base and charges 35 bps in annual fees.
The ETF has a certain tilt toward growth stocks, accounting for
more than half of the portfolio, while sector wise, specialty
retail has one-third of the share. The in-focus Wal-Mart takes the
second spot with about 8.54% weight.
RTH is down over 6% in the year-to-date time frame and has room for
upside given the Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘Low’
risk outlook.
XLP in Focus
One of the most popular consumer ETFs on the market, XLP follows
the S&P Consumer Staples Select Sector Index. The fund invests
about $6.45 billion of assets in 42 holdings. Of these firms, the
in-focus Wal-Mart takes the fourth spot, making up roughly 7.83% of
the assets.
In terms of sector exposure, the fund is skewed toward food &
staples retailing which makes up for one-fourth share, closely
followed by household products (20.8%) and beverages (20.2%).
The fund charges 18 bps in fees per year from investors. The fund
lost about 5.0% so far this year. XLP currently has a Zacks ETF
Rank of 4 or ‘Sell’ with a ‘Low’ risk outlook (read: Consumer ETFs
in Focus on Muted PG Earnings).
VDC in Focus
Managing an asset base of over $1.59 billion, this fund provides
exposure to a basket of 111 consumer stocks by tracking the MSCI US
Investable Market Consumer Staples 25/50 Index. The product charges
a low fee of 14 bps per year from investors (see all the Consumer
Discretionary ETFs here).
The ETF is highly concentrated across its top 10 companies at
nearly 61% of the assets. Wal-Mart takes the fourth spot with
around 7.3% exposure in the fund.
VDC lost over 5.0% in the year-to-date frame. The fund has a Zacks
ETF Rank of 3 or ‘Hold’ rating with a ‘Low’ risk outlook (read:
Follow Warren Buffett in 2014 with These Sector ETFs).
Bottom Line
Investors should note that growth in consumer staples will likely
pick up from the upcoming quarter as per the Zacks Earnings
Trend.
Though currently Wal-Mart is not on our wish list as evident from
its Zacks Rank #4 (Sell) for company-specific reasons, investors
eyeing the consumer ETF space can consider buying in those products
on their recent dip. And to do this, RTH should be a better option
as it is a blend of both cyclical (high-growth) and non-cyclical
corners of consumer ETFs which may be the way to play the space
going forward.
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MKT VEC-RETAIL (RTH): ETF Research Reports
VIPERS-CONS STA (VDC): ETF Research Reports
WAL-MART STORES (WMT): Free Stock Analysis Report
SPDR-CONS STPL (XLP): ETF Research Reports
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