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iShares Launches U.S. Consumer Discretionary ETF

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iShares launched a new fund on Mar 23, focused on providing exposure to the Consumer Discretionary space.

iShares Evolved U.S. Discretionary Spending ETF (IEDI - Free Report) is one of the seven funds launched by iShares in late March that are powered by Artificial Intelligence technologies.

Fund Characteristics

The fund’s index seeks to provide investors exposure to the discretionary spending sector. This fund seeks to employ data science techniques to identify companies in the target sector. It has amassed AUM of $3.6 million within a few days of trading and has a low expense ratio of 18 basis points a year.

From a top holding perspective, the fund has significant exposure to Amazon.com (AMZN - Free Report) , Home Depot Inc (HD - Free Report) and Walmart Inc (WMT - Free Report) , with 10.1%, 9.3% and 6.3% exposure, respectively. The fund has 215 holdings.

How Does it Fit in a Portfolio?

The U.S. market traded lower after a long weekend, as China announced retaliatory measures against President Trump’s tariffs and Trump continued his attack on Amazon.com. However, overall U.S. economic fundamentals remain somewhat upbeat. GDP increased 2.9% in the last quarter of 2017 compared with the previously reported 2.5%, per the Commerce Department. Moreover, with the earnings season approaching, U.S. stocks might see some relief from major political market movers (read: Winning ETF Areas of March).

These active sector ETFs are a unique way to gain targeted exposure to specific sectors of the U.S. equity market. They are managed by BlackRock’s Systematic Active Equity group and are powered by machine learning. These funds incorporate data analysis techniques via AI tech to select component stocks from multiple segments of the markets. The AI screens help the ETFs to keep up with changing market dynamics, as opposed to traditional sector classifications where companies might be stuck in old classifications.     

Competition

The fund faces intense competition. Below we discuss a few ETFs that seek to provide exposure to the consumer discretionary sector.

Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)

This fund seeks to provide exposure to consumer discretionary stocks and tracks the Consumer Discretionary Select Sector Index. Strength in consumer spending is expected to drive stocks in this sector higher. It has AUM of $13.1 billion and charges a low fee of 13 basis points a year.

The fund’s top three holdings are Amazon.com Inc, Home Depot Inc and Comcast Corp (CMCSA - Free Report) with 19.9%, 7.3% and 5.6% allocation, respectively. The fund has returned 13.4% in a year. XLY has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Vanguard Consumer Discretionary ETF (VCR - Free Report)

This fund seeks to provide exposure to consumer discretionary stocks and tracks the MSCI US Investable Market Consumer Discretionary 25/50 Index. It has AUM of $2.7 billion and charges a fee of 10 basis points a year.

The fund’s top three holdings are Amazon.com Inc, Home Depot Inc and Comcast Corp A with 17.0%, 5.9% and 4.7% allocation, respectively. The fund has returned 12.6% in a year. VCR has a Zacks ETF Rank #3 with a Medium risk outlook.

First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report)

This fund seeks to provide exposure to consumer discretionary stocks in the United States. It has AUM of $497.9 million and charges a fee of 63 basis points a year.

The fund’s top three holdings are Dick's Sporting Goods Inc. (DKS - Free Report) , Kohl's Corporation (KSS - Free Report) and Burlington Stores Inc. (BURL - Free Report) with 1.8%, 1.8% and 1.6% allocation, respectively. The fund has returned 9.8% in a year. FXD has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

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