The consumer cyclicals sector is concerned with companies with fortunes that tend to rise and fall almost directly in line with the condition of the overall economy. This sector is also referred to as the consumer discretionary sector. It includes companies that offer products or services that are considered discretionary purchases, things that consumers usually buy more of during a strong economy and less of when economic conditions are difficult. The sector includes a wide variety of retail stores and retail product manufacturers, restaurants, automotive companies, travel and hotel businesses, and entertainment companies. Major firms that are considered part of the consumer cyclical sector include the Walt Disney Company, Starbucks and Amazon.
Many companies included in the consumer cyclicals sector are also considered part of other major market sectors. For example, virtually all restaurant company stocks are included in both consumer cyclicals and in the food and beverage sector. Mutual funds provide investors with a good means of obtaining exposure to the large and varied consumer cyclicals sector.
The Fidelity Select Consumer Discretionary Portfolio was launched by Fidelity in 1990 and remains one of the most popular and widely held consumer cyclicals mutual funds, with over $1.2 billion in assets under management (AUM). The fund offers investors exposure to the performance of major companies in the consumer cyclicals sector. The primary investment goal of this fund is capital appreciation. Under normal conditions, 80% or more of the fund's assets are invested in common stock of large value and high growth potential companies whose core business is the manufacture or distribution of consumer discretionary goods or services. The fund invests principally in U.S. stocks, but may hold foreign equities as well. The Fidelity Group manages the fund and bases its portfolio selections on fundamental analysis of a company's financial condition, industry conditions and overall economic conditions. Any dividends or capital gains are distributed semi-annually.
Approximately 65% of the fund's portfolio consists of consumer nondurables and retail stocks. The Walt Disney Company is the number-one holding, accounting for nearly 10% of the fund's assets. Other major holdings include Home Depot, Comcast Corporation, Starbucks, Nike and Hilton Worldwide Holdings.
The fund's expense ratio is 0.79%. It offers a dividend yield of 0.32%. The fund's five-year annualized return is 19.91%. Turnover of portfolio holdings is fairly high at 109%. The fund is rated average risk for its category. The fund's risk-adjusted return, as measured by its three-year Sharpe ratio of 2.07, is well above the category average of 1.51.
The Vanguard Consumer Discretionary Index Fund was launched by Vanguard in 2004. It is notable for its minimum required investment of $100,000. The fund has over $2 billion in total assets. With twice as many holdings as the Fidelity Select Consumer Discretionary Portfolio, this Vanguard fund is appropriate for investors seeking a very broad, all-encompassing exposure to consumer cyclicals companies. Michael Johnson, who has over 10 years of experience in managing index funds, is the fund manager.
The fund seeks investment results that match the performance of the benchmark index, the MSCI U.S. Investable Market Index/Consumer Discretionary 25/50. The index is meant to reflect the overall performance of the consumer discretionary sector and is composed of a broad range of large-, small- and mid-cap stocks of companies engaged in consumer cyclical business enterprises. The fund ordinarily invests virtually all of its assets in the stocks that comprise the benchmark index. Up to 10% of the fund's assets may be invested in foreign stocks. Dividends and capital gains are distributed annually.
Consumer durables and nondurables, retail and technology stocks altogether account for approximately 80% of the fund's holdings. Principal holdings include Amazon, Comcast, McDonald's, the Priceline Group and Time Warner, Inc. Other noteworthy cyclical stock holdings are Yum! Brands and the Callaway Golf Company.
The fund carries an expense ratio of only 0.12%, and it offers a dividend yield of 1.06%. Its five-year annualized return is 22.25%. The fund has a low annual turnover ratio of only 10%, and it is considered to be of average risk. The fund's three-year Sharpe ratio of 2.27 indicates that the fund provides a significantly above-average risk-adjusted return.
Guggenheim Investments introduced the Rydex Retailing Fund Advisor Class in 1998. It is most appropriate for investors seeking extensive exposure to retailers. Michael Byrum, the president and chief information officer (CIO) of Rydex Investments since its founding in 1993, manages the fund.
The Rydex Retailing Fund's investment aim is capital appreciation. The fund is invested in companies involved in the business of merchandising finished retail goods, such as department stores, restaurant chains and various other retail firms. The fund's $61 million in assets includes common stocks, American depositary receipts (ADRs), futures and options contracts, and other derivative instruments that represent investments in the securities of U.S. retail stocks. The fund may also invest a portion of its assets in U.S. Treasury securities and trade using repurchase agreements. The fund distributes any capital gains or dividends annually.
As the fund's name implies, it is most heavily invested in retail company stocks. The retail industry accounts for nearly 80% of the fund's total portfolio assets. Technology stocks make up another 10% of the fund's holdings. Large-cap stocks provide roughly 50% of the fund's holdings, followed by mid-cap stocks at approximately 30%, with small- and micro-cap stocks accounting for the remaining 20%. The weighted average market capitalization of companies in the fund's portfolio is approximately $18 million. Major portfolio holdings include Wal-Mart Stores, Inc., Amazon.com, Inc., CVS Health Corporation, Netflix, Target Corporation and Dollar General Corporation.
The Rydex Retailing Fund offers a dividend yield of 0.13%. The fund's expense ratio of 1.83% is well above average for this mutual fund category. As of 2015, the fund's five-year annualized return is 19.21%. The annual turnover ratio for the fund is extremely high, at 395%. The average annual turnover ratio for mutual funds in the consumer cyclicals category is only 72%. The fund's three-year Sharpe ratio of 1.48 is right around the average for retail-focused funds.