Thematic - Review of the Consumer Discretionary Group

Cerundolo Investment Research    

Thematic Update  

Volume 2, Issue 2
April 26, 2021

Download Ideas PDF Report HERE

Download XLS Interactive Database HERE

Download Scoring Guide and Use for XLS sheet HERE

Items of Interest:

The consumer discretionary sector had a large step size move up in our multi-factor model ranking from the prior month. We see this for both the U.S. and global markets. The U.S. weighting in the iShares (RXI) ETF is high at 56.44%, but it is the best way we can find to get a measure of a sector’s performance on a global basis. We show the country weightings and sector breakdown on page 2 of the CIR Consumer Discretionary pdf.

Our model has a heavy weighting of an equity’s relative performance to a benchmark; here, we are using the S&P 500. On pages 4 and 6, we show both ETFs on an absolute and relative basis as well as our model score. You can see that the XLY went bullish in May of 2020 and started to weaken in January of this year when the relative performance started to deteriorate. We have the model score improving as the relative has turned up. The RXI on page 6 shows a similar improvement.

On pages 7-10, we highlight eight long ideas where the model score is very good. On pages 11-14, we have eight stocks with an improving score and at timely buy zones. We have included a spreadsheet of the current ranking of the XLY where you can filter the list on several inputs such as absolute or relative trend, momentum, or the composite score. The stocks in this ranking are that of the XLY plus another subset of the sector to encompass a broader list of ideas.

This process can be applied to any benchmark to help a manager focus on the most favorable stocks in a list and what to avoid or consider as hedges for a long/short manager.