Diversify Your Consumer Discretionary Holdings with this ETF

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

Investors are becoming increasingly familiar with the idea that market-cap weighting can result in massive investments in just a few companies that dominate a particular index.

The NASDAQ is a perfect example. Investing in the NASDAQ as an index results in an investment of close to 30% in just three companies: Apple (NASDAQ:AAPL), Microsoft (MSFT) and Amazon (NASDAQ:AMZN).

Although not every index has this extreme imbalance, typically when we look to invest in an index, it’s with the hope of gaining broad and diverse exposure to a number of companies. It is one of the advantages of exchange-traded funds (ETFs).

One strategy to recapture this advantage is the use of equal weighting, a practice in which a fund invests equal sums in all components of an index. This is how we get investment vehicles like Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD). This fund is a cross between the equal weight concept and a sector ETF. However, unlike some equal weight funds, it will not have much allocation to very small companies, since such companies do not exist in the S&P 500 index.

Like much of the market, this fund has had a great last 12 months. It is up nearly 94% during that period. It also has increased close to 20% in value this calendar year. The fund’s 0.40% expense ratio is in the typical range. Plus, RCD currently manages just under $950 million. The dividend yield is about 1%.

Chart courtesy of StockCharts.com

There are more than 60 companies held in this fund. Notably, the equal-weighting strategy prevents returns from being dominated by Amazon. RCD holds equal weight in an assortment of U.S.-based consumer discretionary names like Home Depot (NYSE:HD), Target (NYSE:TGT), D.R. Horton (NYSE:DHI) and Dollar General (NYSE:DG).

Exclusive  Fight Over Federal Budget Looms Large

The increased allocation outside of mega-cap stocks due to this fund’s strategy means that the average market cap of its holdings is less than a fifth of the segment benchmark. This can be a good or a bad thing, depending on your feelings about the continued profit potential of massive companies like Amazon. If equal weighting sounds like a potentially profitable angle on the consumer discretionary sector, consider whether Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD) is right for your portfolio.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

share on:

Like This Article?
Now Get Jim's FREE Special Report:
The Top 11 Dividend ETFs to
Buy Right Now

Get up to 5X the yields of traditional income plays.

Get Access to the Report, 100% FREE

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader


Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor